A Reserve Bank committee has come out against the central bank's insistence on new lenders listing in three years, saying the clause may be detrimental to the interests of minority shareholders.
"It is...puzzling as to why RBI has argued in favour of early listing from a governance standpoint as premature listing could be damaging to the interest of the incoming minority shareholders," according to the Committee to Review Governance of Boards of Banks in India, headed by ex-Axis Bank chairman PJ Nayak.
The 2013 guidelines of the Reserve Bank of India require banks to list on the stock exchanges to meet the objective of broad-basing the shareholding structure. IDFC and micro-lender Bandhan were the two entities allowed last month to start new banks from among 24 applicants for licences. The RBI issued bank licences after a gap of a decade.
In its report presented yesterday, the Nayak committee said three years is a short time to gauge whether a bank has the management skills to create a value proposition, while factors such as market interest in the stock and determining the future financial trajectory are also difficult. The committee said insistence on a three-year window for listing incentivises "poor governance" promoters to exit,
while "good governance" promoters who want to grow a business
slowly are disincentivised.
Minority shareholders are "shortchanged" in such eventualities, it added.
Additionally, asymmetric information between a company management and incoming investors at the stage of the initial public offering is acute and minority shareholders may get affected.
"It appears desirable that time of listing should be entirely at the discretion of the bank management and not be subject to any regulatory pressure, whether in the case of the existing unlisted banks or the banks licensed under the 2013 guidelines," it said.
Catholic Syrian Bank, Ratnakar Bank, Tamilnad Mercantile Bank and Bank of Nainital are currently unlisted.
Catholic Syrian Bank and Ratnakar Bank have been instructed to list by December 2014, according to the committee report, the recommendations of which may be accepted or rejected by the RBI after receiving public comments.