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AKP Banking & Finance Digest- January 23, 2023

Weekly Round-Up | Updates


Master Direction - Reserve Bank of India (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 was published by the Reserve Bank of India (RBI). The guidelines were published on January 16th, 2023, and they take effect right away. All banking organisations functioning in India, including Local Area Banks (LABs), Small Finance Banks (SFBs), and Payments Banks (PBs), are subject to the provisions of these directives. As per the guidelines, any person who intends to make an acquisition that is likely to result in major shareholding in a banking company is required to seek previous approval from the Reserve Bank of India (RBI) by submitting an application to it.

RBI issued guidelines on January 16th, 2023 for the Acquisition and Holding of Shares or Voting Rights in Banking Companies.

The following are some of the areas that the guidelines address:

  • Prior approval for the acquisition of shares or voting rights in a bank

A previous RBI approval is required for anyone planning to buy shares or voting rights and become a significant stakeholder in a banking company. Such a person must submit Form A declaration and an application to RBI.

  • Information that will be provided for continuous monitoring

Any change in the information provided in Form A or any other development that could have an impact on the status of being "fit and proper" must be reported to the banking company by the major shareholders who have completed the approved acquisition, applicants who have obtained the approval to have major shareholding or applicants who have submitted the application for obtaining the prior approval. In addition to giving the financial company the requested information, this is also done.

  • Lock-in requirement

The shares acquired must be locked in for the first five years from the date of completion of the acquisition, if RBI permits a person to own 10% or more of the paid-up equity share capital of the banking business but less than 40% of the paid-up equity share capital.

When an individual is permitted to own 40% or more of the paid-up equity share capital of a banking company, only 40% of such capital will be subject to lock-in restrictions for the first five years following the date the acquisition was completed.

By order dated January 6th, 2023, Reserve Bank of India (RBI) penalised the Citizens' Co-operative Bank Limited, Jammu, Jammu and Kashmir (the bank) 5 lakhs (Rupees Five Lakh only) for violating Sections 35 A and 36 (1) (a) read with Section 56 of the Banking Regulation Act, 1949. This penalty has been levied in accordance with the authority granted to RBI by Sections 47A (1)(c) read in conjunction with Sections 46(4)(i) and 56 of the Banking Regulation Act of 1949, taking into account the bank's failure to follow specific instructions from RBI.[1]

Reserve Bank of India (RBI) has imposed a monetary penalty of ₹2 lahks (Rupees Two Lakh only) on the District Co-operative Bank Limited, Dehradun, Uttarakhand (the bank) in an order dated January 06, 2023, for violating the provisions of Sections 20 and 56 of the Banking Regulation Act of 1949. This penalty has been issued in accordance with the authority granted to RBI by virtue of Sections 47A (1)(c) read in accordance with Sections 46(4)(i) and 56 of the Banking Regulation Act of 1949, taking into account the bank's failure to comply with Section 20 read in conjunction with Section 56.[2]

Statement on Developmental and Regulatory Policies, which was published on September 30, 2022, included a proposal by RBI to use an expected loss-based approach to calculate the loss allowances that banks must keep in relation to their loan exposures. A discussion paper outlining the various facets of the transition will be released soon, it was reported.

As a result, RBI January 16th published the Discussion Paper (DP), which thoroughly explores a number of concerns and suggests a framework for banks in India to adopt an expected loss-based approach for provisioning.

The proposed approach is to create principles-based recommendations that, where appropriate, are supported by regulatory backstops. Additionally, it is suggested to exclude from the aforementioned framework regional rural banks and smaller cooperative banks (based on a threshold to be set based on opinions).

The primary requirement of the proposed framework is that banks categorise financial assets (primarily loans, including irrevocable loan commitments, and investments classified as held-to-maturity or available-for-sale) into one of three categories—Stage 1, Stage 2, or Stage 3—depending on the assessed credit losses on them, at the time of initial recognition as well as on each subsequent reporting date, and make necessary provisions.[3]

Raigad Sahakari Bank Limited, Mumbai, Maharashtra, was placed under directions by the Reserve Bank of India according to Directive CO.DOS.DSD.No.S2469/12-07-005/2022-23 dated July 15th, 2022, for a term of six months.

In accordance with Directive DOR.MON.D-58/12.22.210/2022-23 dated January 17th, 2023, Reserve Bank of India, acting in the exercise of its authority under sub-section (1) of Section 35 A read with Section 56 of the Banking Regulation Act, 1949, hereby directs that the aforementioned Directions shall continue to apply to the bank through April 18, 2023, subject to review.

The other terms and conditions of the referred-to Directives shall not change. A copy of the directive, dated January 17, 2023, informing of the aforementioned prolongation.[4]

The publication includes the Scheduled and Non-Scheduled Primary (Urban) Co-operative Banks' financial statements for the fiscal year 2021–2022. The publication offers compiled data on the balance sheet's key components, including the profit and loss account, non-performing assets, financial ratios, office distribution by state, and information on priority sector advancements. The publication also offers bank-specific data on a few financial ratios related to capital adequacy, profitability, and employee productivity for Scheduled Primary (Urban) Co-operative Banks.[5]

2. Bangladesh

Bangladesh Bank (“BB”) in its recent circular held that the tenure of loans to the cottage, micro, small and medium entrepreneurs, also known as CMSMEs, as working capital under the Tk25,000 crore refinancing scheme must be one year. The central bank formed the Tk25,000-crore refinancing scheme in July last year to support small-scale entrepreneurs for the next three years. Banks and financial institutions are getting funds under the scheme at 2% interest and lend CMSMEs at up to 7% rate.

BB has instructed banks to set up at least 60% of their sub-branches outside city corporations and municipal areas. Now no sub-branch can be established below a distance of at least 1km from the controlling branch. The circular stated that the lease agreement for sub-branch premises must be for a minimum period of three years and the rent cannot be raised by more than 15% during the period.


The Central Bank of Sri Lanka has invited bids from the primary dealers in Government Securities to buy Rs. 120,000 million treasury bills. Treasury bills are short-term debt instruments issued by the government that pays no interest and are zero-coupon securities.

[1] Press Release: 2022-2023/1555, January 16 2023, Reserve Bank of India [2] Press Release: 2022-2023/1568, January 16 2023, Reserve Bank of India [3] Press Release: 2022-2023/1558, January 16 2023, Reserve Bank of India [4] Press Release: 2022-2023/1565, January 17 2023, Reserve Bank of India [5] Press Release: 2022-2023/1568, January 18 2023, Reserve Bank of India

Disclaimer The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

* Image credits: RBI

For further queries or details, you may contact:

Mr Anuroop Omkar,

Partner, AK & Partners


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