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Banks, financial stocks climb after RBI IWG's suggestions on private sector banks
(16:59, 20 Nov 2020)
RBI had constituted an Internal Working Group (IWG) on 12 June 2020 to review extant ownership guidelines and corporate structure for Indian private sector banks. The central bank released the groups' report on Friday.

IWG has recommended that the cap on promoters' stake in the long run (15 years) may be raised from the current level of 15% to 26% of the paid-up voting equity share capital of the bank.

As regards non-promoter shareholding, a uniform cap of 15% of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders, IWG recommended.

It further proposed allowing large corporate/industrial houses as promoters of banks, but only after necessary amendments to the Banking Regulation Act, 1949 and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.

IWG recommended that well run large non-banking finance companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.

The working group further suggested that the minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1000 crore for universal banks, and from Rs 200 crore to Rs 300 crore for small finance banks.

After RBI unveiled IWG report, the Nifty Bank index jumped 1.15% to settle at 29,236. The index rose 2.29% from the day's low of 28,580.90 hit in mid-morning trade. The index has rallied 22.32% so far in November.

Kotak Mahindra Bank (up 3.05%), HDFC Bank (up 2.23%) and SBI (up 0.94%) advanced.

As of 30 September 2020, Uday Kotak, promoter of Kotak Mahindra Bank, held 26.04% stake in the private bank.

The Nifty Financial index rose 1.7% to 14,210.50 today. The index is up 22% this calendar month so far.

Bajaj Finserv (up 9.27%), Bajaj Holdings (up 4.73%), Bajaj Finance (up 3.98%), Shriram Transport Finance (up 2.33%) and Cholamandalam Investment and Finance (up 1.23%) rallied.

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