As it sought comments on grant of new banking licenses, RBI today listed out rules in ten global jurisdictions and nowhere found clear-cut laws banning industrial houses from owning or running banks.
The list of countries and regulatory jurisdictions annexed by RBI in its discussion paper on grant of new banking licenses include the U.S., U.K., European Union, Japan, Hong Kong, Australia, France, Malaysia, Germany and Canada.
While RBI said that “no information is available” in this regard for Malaysia, the other nine jurisdictions did not bar industrial houses as such from the banking space.
Since Finance Minister Pranab Mukherjee hinted in his Budget speech for the year 2010-11 that RBI was contemplating allowing new private players in banking, the entry of business and industrial houses has been widely debated.
Those said to be keen to promote or run banks in India include a number of industrial houses such as Anil Ambani group, Malvinder and Shivinder Mohan Singh-promoted Religare Group, Aditya Birla group and Shriram group.
Guidelines for new private bank licences first came in January 1993 and subsequently revised in January 2001.
However, the guidelines are “cautious in nature”, RBI said, adding that large industrial houses are not permitted to promote banks. Individual companies connected with large industrial houses are permitted to own 10 percent of the equity of a bank, but without any controlling interest.
An NBFC with good track record is also eligible to convert into a bank, provided it was not promoted by a large industrial house besides some other conditions.
Talking about rules outside India, RBI today said that any entity or person was eligible to own a bank in Canada provided they satisfy the statutory criteria.
Australia also has no statutory provisions excluding ownership of a banking business entity by an industrial company and the rules there permit banks to be owned by industrial companies with certain conditions.
In Hong Kong too, there is no specific restrictions on ownership of banks by industrial houses, while “industrial companies are allowed to own banks in Germany.”
France also allows any shareholder to hold controlling interest in banks, as long as they have required financial resources and banking and financial experience. Otherwise, they are asked to get a sponsor that meets these rules.
The U.S., U.K. and E.U. also have no specific restrictions for industrial houses owning or running a bank.
On whether industrial companies can own banks in Japan, RBI said: “There is no specific information on this aspect.
“However, the Banking Law specifies that a bank holding company cannot perform any other business than administration of operations of banks which are its subsidiaries” and of companies that have financial related businesses.