The RBI-constituted committee is headed by PJ Nayak said that the central bank should designate a specific category of investors in banks as Authorised Bank Investors (ABIs), defined to include all funds with diversified investors which are discretionally managed by fund managers and are deemed to be fit and proper.
ABIs would therefore include pension funds, provident funds, long-only mutual funds, long-short hedge funds, exchange-traded funds and private equity funds (including sovereign wealth funds) provided they are diversified, discretionally managed and found to be 'fit and proper'.
ABIs would exclude all proprietary funds (including those which are hedge funds or set up by corporates), non-banking finance companies and insurance companies.
A single ABI should be permitted a maximum 20 per cent investment stake in a bank without regulatory approval provided it possesses no right to appoint a board director. An ABI which is given board representation, and thereby exercises a measure of influence, should be permitted a lower 15 per cent maximum investment limit without regulatory approval. Every other investor should be permitted no more than 10 per cent without regulatory approval.
It would be impractical for either RBI or a bank to conduct a prior scrutiny on whether an investor is 'fit and proper' before an investment occurs. If, however, at any stage and based on information laid before it, RBI concludes that an investor in a bank is not fit and proper, RBI would be entitled to freeze the investor's voting rights in the bank and to seek its disinvestment within a specified time period. As the initial onus of belief in being fit and proper therefore falls on the investor, RBI should also consider offering an informal guidance service on whether past regulatory or other action against an investor would disqualify categorisation as fit and proper.
For promoter investors other than ABIs it is proposed that the continual stake ceiling be raised to 25 per cent.
It would be inappropriate for regulation to stipulate a period within which banks should be listed, particularly from a governance perspective, as premature listing could be injurious to minority shareholder interests. It would therefore be desirable to modify the 2013 norms for new private sector banks.
For banks identified by RBI as distressed, it is proposed that private equity funds, including sovereign wealth funds, be permitted to take a controlling stake of upto 40 per cent.
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