"The idea is to create a level playing field, and to remove restrictions or structures that are not relevant anymore. The intention is to simplify and harmonise norms for all private banks," the source said. The RBI is looking at harmonising regulations on promoter stake, voting rights, holding company structure, and so on, the source said.
The regulatory norms for banks vary since regulations have changed under different licensing regimes. For example, many older private banks promote lending institutions, though two lending institutions under the same group have been barred for newer banks. "We are trying to find ways to streamline variations under bank licences that are there. That is why the RBI has already made tweaks in small finance bank norms," a senior industry official said. The source said this was easier as there were just small variations in the 2014 and 2019 norms for small finance banks.
On Mar 28, RBI issued norms that synced regulations for on-tap licences for small finance banks with original guidelines issued in 2014. To enable these changes with minimal friction, the central bank recently ended a legal battle with Kotak Mahindra Bank over the promoter reducing stake in the bank. The RBI also lifted the bar on Bandhan Bank opening banking branches as it was impeding the bank's ability to bring down promoter stake. The RBI, which had not issued too many bank licences to the private sector till the 1990s, issued 10 licences in 1993-94 that led to the birth of banks, including ICICI Bank and HDFC Bank. In 2001, the RBI revised the regulations again and then gave licences to Kotak Mahindra Bank and YES Bank.
The regulations were revised in 2013 when RBI gave licences to Bandhan Bank and IDFC Bank. A key change in 2013 norms was that promoter was allowed to hold up to 15% stake, compared with 10% earlier. The higher limit was later extended to all private sector banks. In a sign of greater comfort with private sector banks, between 2013 and 2016, there was a review of the bank licences that have been issued, and it was decided that going forward universal bank licences will be issued 'on-tap'. The on-tap licensing norms issued in August 2016 gave flexibility on holding company structure. Although, not specifically barring corporates from applying for a licence, the stringent norms meant that it would not make sense for non-financial companies to seek a bank licence.
Apart from universal banks, the RBI has licensed 10 small finance banks and 11 payments banks. Although all 10 small finance banks have successfully launched operations, many of the payments banks either did not start or have wound up operations. The success of the small finance bank model, which focuses on banking to the unbanked and financially excluded, has also led the RBI to issue on-tap licensing norms with some tweaks in 2019, although no banks have been licensed under that regime yet.