General Electric's plan to acquire a bank in India may come a cropper as the Reserve Bank of India is not in favour of the move.
This is because GE is not a banking entity and, therefore, does not conform to the Indian banking regulator's parameters of a "fit and proper" acquirer.
This means GE will have to wait for at least four years when the RBI plans to review its banking ownership norms.
"If we allow GE to acquire a bank in India, we will have to allow local corporations as well. One cannot have two sets of rules," said a source close to the RBI.
Existing norms stipulate that no corporate entity can own more than 10 per cent stake in a bank. According to the sources, RBI authorities had informed GE executives about the decision at a recent meeting.
The RBI decision, in effect, also ends speculation over Reliance Capital buying out a private sector bank based in south India. Reliance Capital is the non-banking finance arm of the Anil Dhirubhai Ambani Enterprises.
"So far, there has not been any proposal from any company to buy a bank. If such a proposal comes, the RBI will follow the existing norms," said the sources.
A few months ago, the RBI unveiled its norms for ownership of private sector banks and acquisitions by foreign banks. Going by these norms, till March 2009, no foreign bank will be allowed to acquire a local bank. But a "fit and proper" acquirer will be allowed to take over a "weak" bank.
There are close to a dozen weak banks in the system and they are being closely monitored by the board for financial supervision of the RBI. Almost all these weak players are in the private banking space and the RBI is monitoring their financial as well as managerial weaknesses.
Promoters of some of these banks have been asked to bring down their stakes and rope in partners. However, a non-banking entity like GE or an Indian corporate will not be allowed to acquire these banks.
GE India CEO and president Scot Bayman, in March this year, told Business Standard: "We are waiting for some clarification from the Reserve Bank of India on which banks will be available for acquisition. In particular, we want to know what is a weak bank and how will such banks be identified. We have to see what is the maximum equity we can get within the existing framework of rules."
Bayman had said GE was looking at the public sector as well as the private sector for the acquisition and would possibly end up with a private sector bank.
No entry
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GE is not a banking entity and, therefore, does not conform to the RBI's parameters of a "fit and proper" acquirer
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GE will have to wait for at least four years when the RBI plans to review its banking ownership norms
- Existing norms stipulate that no corporate entity can own more than 10% in a bank
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