Master Direction — Ownership in Private Sector Banks, Directions, 2016 dated May 12, 2016

The Reserve Bank of India issued master directions for ownership in private sector banks in May 2016. The directions
are applicable to all private sector banks licensed by RBI to operate in India. Under the directions, “private sector banks”
have been defined as banks licensed to operate in India under the Banking Regulation Act, other than urban co-operative
banks, foreign banks and banks licensed under specific statutes. Under the directions, shareholders are now categorized
as natural persons (individuals) and legal persons (entities/institutions) for the purposes of ownership limits in the longer
run. Non-financial and financial institutions, and among financial institutions, diversified and non-diversified financial
institutions shall have separate limits for shareholding.

The limits for shareholding are as follows: (i) in the case of individuals and non-financial entities (other than
promoters/promoter group), the limit shall be 10% of the paid-up capital. However, in case of promoters being individuals
and non-financial entities in existing banks, the shareholding shall be 15% of the paid-up capital, (ii) for entities in the
financial sector, other than regulated or diversified or listed, the limit shall be at 15% of the paid-up capital, (iii) in case
of ‘regulated, well diversified, listed entities from the financial sector’ and shareholding by supranational institutions or
public sector undertaking or Government undertaking, a limit of 40% of the paid-up capital is prescribed, and (iv) higher
stake/strategic investment by promoters/non-promoters through capital infusion by domestic or foreign entities/institution
shall be permitted on a case to case basis under circumstances such as relinquishment by existing promoters,
rehabilitation/ restructuring of problem/ weak banks/ entrenchment of existing promoter or in the interest of the bank or
in the interest of consolidation in the banking sector.

 

However, in case any promoter / promoter group is eligible for higher shareholding as per the SFB licensing guidelines,
as is relevant in case of our Bank, then the same will apply and the limits prescribed for all shareholders as stated above
shall not apply.

A period of 12 years from the date of commencement of business of the bank shall be available for the promoter and
promoter group in cases where dilution to a lower level of shareholding is required for compliance with the specified
limits. Acquisition of shareholding in a private sector bank shall be subject to the applicable FDI Policy, with the
aggregate foreign investment in private sector banks not exceeding 74% of the paid-up capital. The directions further
prescribe that banks (including foreign banks having branch presence in India) shall not acquire any fresh stake in a
bank’s equity shares, if by such acquisition, the investing bank’s holding is 10% or more of the investee bank’s equity
capital. However, RBI may permit a higher level of shareholding by a bank in exceptional cases.

Master Direction — Issue and Pricing of shares by Private Sector Banks, Directions, 2016

The RBI issued master directions for issue and pricing of shares by private sector banks on April 21, 2016. The directions
are applicable to all private sector banks licensed by RBI to operate in India. Under the directions, “private sector banks”
have been defined as banks licensed to operate in India under the Banking Regulation Act, other than urban co-operative
banks, foreign banks and banks licensed under specific statutes. Under the directions, a private sector bank, both listed
and unlisted, has general permission for issue of shares by way of public issues (initial public offer, further public offer),
private placement (preferential issue, qualified institutional placement), rights issue and bonus issue, subject to
compliance with applicable laws such as FEMA and extant foreign investment policy of the Gol for private sector banks,
provisions of the Companies Act, and the relevant SEBI guidelines, the RBI master directions dated November 19, 2015
on Prior Approval for Acquisition of Shares or Voting Rights in Private Sector Banks and reporting of complete details
of the issue to RBI such as date of issue, details of the type of issue, issue size, details of pricing, number and names of
allottees, post allotment shareholding position etc., along with a copy of the board/ annual general meeting resolution and
prospectus/ offer document in the prescribed format.

Master Circular — Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating
Financing of Terrorism (CFT)/Obligation of banks and financial institutions under PMLA, 2002 dated July 1, 2015

The RBI has issued several guidelines on Know Your Customer (KYC) and Anti Money Laundering (AML) inter alia
containing rules on (i) customer identification procedures and customer acceptance; (ii) monitoring of transactions; and
(iii) vigilance at the time of opening accounts for new customers to prevent misuse of the banking system. Banks have
been advised to ensure that systems and procedures are in place to control financial frauds, identify money laundering
and suspicious activities and monitor high value cash transactions. Such monitoring includes cross border transactions.
Further, banks have also been advised to ensure that adequate policies are formulated and adopted in relation to KYC and
AML.

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