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Guidelines for transfer/allotment of shares in private banks


The Reserve Bank has issued the following guidelines on the grant of acknowledgement for acquisition and transfer of shares in private banks after a review of the operation of existing instructions and recent developments. These guidelines build on the existing policy and clarify and streamline existing procedures for obtaining acknowledgement to remove uncertainties for potential investors, both domestic and foreign, in regard to allotment and transfer of shares in private banks. The guidelines also take into account the use of demat shares, emerging trends in banking and international best practices.

Current status

2. As per the existing policy of RBI, any allotment or transfer of shares which will take the aggregate shareholding of an individual or a group to equivalent of five percent and more of the paid-up capital of the bank requires acknowledgement of RBI before the bank can effect the allotment or transfer of shares. The bank is required to approach the Reserve Bank of India with all the relevant details for acknowledgement of transfer/allotment of shares after the Board makes a review. The bank is required to await the Reserve Bank's acknowledgement, for approving the registration of the transfers in their books. Such measures are necessary to protect depositors interest and the integrity of the financial system.

Proposed Guidelines for grant of acknowledgement

3. In order to streamline the procedures for obtaining acknowledgement by removing uncertainties for investors including foreign investors (FDI, FII and NRI) in regard to the allotment or transfer of shares and indicate in a transparent manner the broad criteria followed by RBI for the purpose, the following decisions have been taken.

4. As hitherto, acknowledgement from RBI for acquisition/transfer of shares will be required for all cases of acquisition of shares which will take the aggregate holding of an individual or group to equivalent of 5 percent or more of the paid-up capital of the bank. RBI while granting acknowledgement may require such acknowledgement to be obtained for subsequent acquisition at any higher threshold as may be specified.

5. The term "holding" in paragraph 4 above refers to both direct and indirect holding, beneficial or otherwise. The holdings will be computed with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated enterprises.

"relative" has the same meaning as assigned under section 6 of the Companies Act, 1956.

"associate enterprise" has the same meaning as assigned under

Section 92A of the Income Tax Act 1991

6. The term "applicant" in these guidelines denotes the applicant, relatives and associate enterprises as indicated in paragraph 5 above.

7. In deciding whether or not to grant acknowledgement, RBI may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet the fitness and propriety tests. The application of such tests is a common regulatory mechanism adopted internationally to ensure that the banks are operated in a sound and prudent manner. In this context, the RBI may call for additional information and documents including shareholder agreements while considering the requests for grant of acknowledgement.

8. Illustrative criteria for acknowledgement of transfer of shares

9. Where acquisition or investment takes the shareholding of the applicant to a level of 10 percent or more and up to 30 percent, the RBI will also take into account other factors including but not limited to the following: (a) source and stability of the funds for the acquisition and the ability to access financial markets as a source of continuing financial support for the bank, (b) the business record and experience of the applicant including any experience of acquisition of companies, (c) the extent to which the corporate structure of the applicant will be in consonance with effective supervision and regulation of the bank; and (d) in case the applicant is a financial entity, whether the applicant is a widely held entity, publicly listed and a well established regulated financial entity in good standing in the financial community.

10. Acknowledgement for transfer of acquisition or investment exceeding the level of 30 percent will be considered keeping the above criteria in view and also taking into account but not limited to the following (a) the acquisition is in public interest, (b) the desirability of diversified ownership of banks, (c) the soundness and feasibility of the plans of the applicant for the future conduct and development of the business of the bank; and (d) shareholder agreements and their impact on control and management of the bank

11. Compliance with other regulations

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