MUMBAI: The Reserve Bank of India (RBI) is undertaking a comprehensive review of bank ownership norms and licensing rules for banks, RBI Governor Sanjay Malhotra said, even as foreign investors continue to corner significant stakes in Indian private lenders through regulatory exceptions.
In an interview with The Times of India, Malhotra said, “We are examining bank ownership norms in totality as part of our internal examination. We will review all aspects of the eligibility conditions.”
His remarks come just weeks after Japan’s Sumitomo Mitsui Banking Corporation signed a deal to acquire a 20 per cent stake in Yes Bank – a move that has rekindled debate around the 15 per cent cap on ownership by a single entity in Indian banks.
While Indian regulations currently allow up to 74 per cent foreign direct investment (FDI) in private banks, they restrict individual ownership – whether foreign or domestic – to 15 per cent, barring specific exemptions. Promoters are allowed to hold up to 26 per cent, but only within a 15-year sunset window. Voting rights are also capped at 26 per cent, adding another layer of control.
Foreign ownership on the rise
Interestingly, despite these restrictions, businessbenchmark.news reported that it is primarily foreign entities that have consistently crossed this 15 per cent threshold in Indian private sector banks – through regulatory forbearance or strategic exemptions. Domestic institutional investors, by contrast, have largely stayed within the prescribed limits, barring notable exceptions such as Uday Kotak’s 26 per cent stake in Kotak Mahindra Bank – permitted under legacy promoter rights – and the Government of India’s majority stakes in public sector banks.
The trend of growing foreign ownership, highlighted in several recent deals, appears to be nudging the regulator towards a more holistic policy rethink.
The RBI governor also hinted at the need to “scale up” Indian banks in line with the rising demands of a growing economy.
“We are looking at the broader picture, including eligibility, scale, and resilience,” Malhotra said.
Asked whether the RBI was considering raising the 15 per cent limit for foreign investors, particularly in light of interest from large global financial institutions, Malhotra declined to offer specifics but acknowledged that “these aspects are part of the ongoing review.”
The review comes at a time when two of the top three contenders for a strategic stake in IDBI Bank – Emirates NBD and Fairfax Group – are foreign entities, underlining the widening interest of overseas investors in India’s banking space.
Malhotra, however, stressed that the Indian financial system remains sound. “The system is very robust and strong. There are no systemic risks or concerns,” he said when asked about recent issues at IndusInd Bank.
