The Government is in consultation with the Reserve Bank of India (reserve Bank of Indiaa) on a special framework for privatization of public sector banks, which would allow bids from corporate-owned shadow banks such as, Shriram Capital And Cholamandalam Finance, as well as the Global Sovereign Wealth Fund. According to people familiar with the matter, this could help accelerate the disinvestment of state-owned lenders.

If approved, these changes would pave the way for corporate ownership of banks, which have so far been a highly regulated space.

Key features of such a framework may include relaxation of ownership and management norms for these banks to make room for a wider pool of bidders owned by corporate groups such as non-banking finance companies (NBFCs). As mentioned above, they can participate in the disinvestment process as long as the share of financial services businesses in the turnover of these groups is more than 60%. This could mean the exclusion of entities such as Tata Capital, L&T Finance or the Aditya Birla Group.

IDBI Discussions on bank privatization continue

RBI may introduce safeguards such as emphasis on ringfencing of non-financial and financial services businesses of corporate groups. A person with knowledge of the matter said, “The idea is that a free and self-sustaining mechanism for privatization of public sector banks would help in attracting more investors and expanding the bidding universe for these properties. ”

Apart from easing of norms to reduce promoter’s share and easing restrictions on voting rights of promoter shareholders, more participation of friendly sovereign wealth funds (SWFs) is allowed, the people mentioned above said. A government official confirmed that the issues related to stake sale of IDBI Bank are under discussion with the banking regulator and it may evolve into a common framework for privatization of all PSU banks.

“Some of these suggestions were already recommended by an internal working group set up by the RBI,” he said. “We have sought more clarity, and have made some suggestions based on that.”

RBI last year issued an internal working group review of ownership guidelines for private sector banks, including their corporate structure. Though it had sought comments from stakeholders, no decision has been taken on the matter. One of the key recommendations of the report was that after amendments to the Banking Regulation Act, 1949, large corporate/industrial houses may be allowed as promoters of banks. It also suggested that large NBFCs, including owned companies, with assets of ₹50,000 crore and above. may be considered by corporates, subject to certain criteria.