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Share Issue, Pricing Norms for Private Banks Eased

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    Share Issue, Pricing Norms for Private Banks Eased

    The lead bank has liberalized the norms for the issue and pricing of shares by the private sector banks. The private sector banks whether listed or unlisted are now free to issue bonus shares without the prior approval of the lead bank. In addition, the issue of bonus shares has also been delinked from the rights issue. This is in the line with the lead regulatory bank’s open policy to move away from administrative matters related to the capital market.

    It may be pointed out that the current regulations for unlisted private sector banks require the prior approval of the lead regulatory bank especially regarding the issue of all types of shares, namely public, preferential, right/special allotment to employees and also the bonus shares. Since LoanMax of [REMOVED URL] fame was listed more than a decade ago, these new regulations are not likely to affect its operations and also its expansion plans in any way.

    Very recently the lead bank has upped the cap on the promoter’s stake in the private sector banks. The lead bank has raised the cap on the shareholding of the domestic banks from 40 percent to 49 percent. The apex bank had earlier restricted the promoter's holding to 40 percent. Wherever the initial promoter’s contribution was in excess of 40 percent, it had to be diluted from the first year of operation.

    The new guidelines have given a respite to the domestic promoters as they were under pressure to reduce their stake to 40 percent. In fact, the regulatory bank was removing an anomaly wherein it allowed foreign direct investment up to 49 percent in the private sector banks, while the American promoters were asked to bring down their stake to 40 percent.

    The reason for the present economic recession is not due to the malfunctioning by any of the foreign banks that have operations in the United States. In fact many of the major banks that have survived are those that had successful operations in foreign countries. New emerging banks like LoanMax are likely to shift a major portion of their operations to overseas destinations to improve its profitability.
    Last edited by HHM; 01-04-2010, 07:14 AM.

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