The Reserve Bank of India loosened restrictions on foreign banks seeking to take stakes in the country’s private-sector lenders, in a move to help weaker Indian banks improve their capital ratios and comply with stricter guidelines.
Foreign banks will be allowed to hold more than the current 10 percent limit in cases where an Indian private-sector bank is undergoing restructuring, or where lenders are consolidating, according to a central bank statement released late Thursday. The RBI didn’t disclose the new limit on the shareholdings.
The changes are intended to address “the need for additional capital for the banks consequent to the implementation of Basel III capital regulations and to rationalize the ownership limit,” the RBI said.
“This is a well timed move by RBI to improve capital ratios at weak private sector banks," said Shishir Mehta, a Mumbai-based partner at Khaitan & Co. "This will help those banks whose capital is being eroded by rising non-performing loans,” Mehta added.
The Basel Committee on Banking Supervision has asked bank regulators around the world to introduce tougher capital standards by March 2019.
Restrictions on supranational institutions and Indian state-run companies were also lifted, with those entities now allowed to hold as much as 40 percent stakes in private-sector banks, the RBI said. Supranational institutions include the World Bank’s International Finance Corp., which holds stakes in a number of firms in emerging economies.