## Report on Reserve Bank of India Master Direction: Issue and Pricing of Shares by Private Sector Banks, 2016
**1. Executive Summary:**
This report analyzes the Reserve Bank of India (RBI) Master Direction DBR.PSBD.No.9516/16.13.100/2015-16, issued on April 21, 2016, concerning the issue and pricing of shares by private sector banks. This new policy provides a general framework for private sector banks, both listed and unlisted, to issue shares through various routes, subject to compliance with existing regulations and specific conditions outlined by the RBI. The core purpose is to regulate share issuance by private sector banks to ensure financial stability and protect investor interests. Key findings highlight the permitted methods of share issuance, conditions for general permission, and reporting requirements to the RBI.
**2. Introduction:**
This report provides an informative overview of the Reserve Bank of India’s (RBI) Master Direction DBR.PSBD.No.9516/16.13.100/2015-16, dated April 21, 2016, regarding the issue and pricing of shares by private sector banks, based solely on the content of the provided policy text. The report aims to detail the policy's scope, requirements, and implications for affected banks.
**3. Policy Overview:**
* Core Objective(s): Based on the text, the core objective is to regulate the issuance and pricing of shares by private sector banks operating in India, ensuring compliance with existing laws and RBI guidelines. The policy aims to provide a structured framework for share issuance, promoting transparency and stability within the banking sector.
**4. Background and Rationale:**
* Since this is a new policy, it is inferred that the RBI likely introduced this Master Direction to consolidate and update existing guidelines regarding share issuance by private sector banks. The policy probably addresses a need for a more comprehensive and streamlined regulatory framework, potentially stemming from previous circulars leading to gaps or inconsistencies in the industry. The need to ensure fair pricing and transparency in share issuance, while adhering to foreign exchange regulations and shareholder rights, further drives the rationale behind this policy.
**5. Key Provisions / Changes:**
As a new policy, the following are the key provisions:
* **Applicability:** The directions apply to all private sector banks licensed by RBI to operate in India, excluding Urban Cooperative Banks, Foreign Banks, and banks licensed under specific statutes.
* **Types of Issues:** Banks are permitted to issue shares through various methods, including:
* Public Issues (Initial Public Offer and Further Public Offer)
* Private Placement (Preferential Issue and Qualified Institutional Placement)
* Rights Issue
* Bonus Issues
* **General Permission:** Private sector banks, both listed and unlisted, have general permission to issue shares through the mentioned routes, subject to specific conditions.
* **Conditions for Share Issuance:**
* Compliance with the Foreign Exchange Management Act (FEMA) and extant Foreign Investment Policy of Government of India for Private Sector Banks.
* Compliance with extant SEBI guidelines, provisions of Companies Act and rules made thereunder.
* Approval from the bank's Board/AGM.
* Pricing of shares for listed banks must follow SEBI formula, while unlisted banks must adhere to Companies Act and rules.
* Allotment of shares is subject to compliance with RBI Master Directions dated November 19, 2015, on prior approval for acquisition of shares or voting rights in private sector banks.
* Specific regulatory limits for shareholders or promoters/promoter groups must not be breached.
* **Reporting Requirements:** Banks must report complete details of the share issue to RBI after allotment, including date of issue, type of issue, issue size, pricing details, number and names of allottees, post-allotment shareholding position, along with a copy of the Board/AGM Resolution and prospectus/offer document.
* **Repeal of Previous Circulars:** The Master Direction repeals several previous circulars related to share issuance (DBOD.No.BC.76/16.13.100/94 dated June 17, 1994; DBOD.No.PSBS.BC.72/16.13.100/98-99 dated July 10, 1998; DBOD.No.PSBD.BC.99/16.13.100/2004-05 dated June 25, 2005; DBOD.No.PSBD.BC.92/16.13.100/2009-2010 dated April 20, 2010). All approvals given under the repealed circulars are deemed as given under these Directions.
**6. Target Audience and Stakeholders:**
The primary target audience and stakeholders are:
* Private sector banks licensed by RBI to operate in India.
* Investors in these private sector banks.
* The Reserve Bank of India.
* Shareholders and promoters of private sector banks.
**7. Implementation Aspects (Inferred):**
* **Responsible Agency:** The Reserve Bank of India (RBI) is the primary responsible agency for overseeing the implementation of this policy. The Private Sector Banks Division, Department of Banking Regulation, Reserve Bank of India, Central Office, Mumbai, is the point of contact for reporting requirements.
* **Timelines/Procedures:** The policy came into effect on the day it was placed on the official website of the RBI. Banks must comply with the reporting requirements after the completion of the allotment process. Investors acquiring 5% or more of the paid-up capital of the bank require prior approval from the RBI, according to Master Directions dated November 19, 2015. The policy requires adherence to existing SEBI and Companies Act guidelines for pricing and other regulatory requirements.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcomes of this policy, based on the stated provisions, are:
* A more structured and transparent process for share issuance by private sector banks.
* Improved compliance with existing regulations, including FEMA, SEBI guidelines, and Companies Act provisions.
* Enhanced investor protection through regulated pricing mechanisms and reporting requirements.
* Greater clarity and consistency in the regulatory framework for share issuance, due to the consolidation of previous circulars.
* Ensuring that shareholding limits are adhered to.
**9. Conclusion:**
The RBI Master Direction on Issue and Pricing of Shares by Private Sector Banks, 2016, provides a comprehensive regulatory framework for private sector banks in India. It streamlines the process for share issuance, ensuring compliance with existing laws and RBI guidelines. The policy aims to enhance transparency, protect investor interests, and promote stability within the banking sector by consolidating previous instructions and establishing clear guidelines for share issuance and pricing. The implementation of this policy is significant for maintaining the integrity and soundness of private sector banks operating in India.
Key Entities Referenced
RBIDBR20151621: Document identifier for the Master Direction.
DBR.PSBD.No.9516.13.100201516: Reference number associated with the Master Direction.
April 21, 2016: Date of the Master Direction.
Master Direction Issue and Pricing of shares by Private Sector Banks, Directions, 2016: Title of the document, indicating its subject matter.
Banking Regulation Act, 1949: Act of Parliament that empowers the Reserve Bank of India to issue directions.
Reserve Bank of India: The issuing authority for the Master Direction (RBI).
Private Sector Banks: Banks to which these directions apply. Defined as banks licensed to operate in India under Banking Regulation Act, 1949, other than Urban Cooperative Banks, Foreign Banks and banks licensed under specific Statutes.
RBI: Abbreviation for Reserve Bank of India.
Foreign Exchange Management Act, 1999: Legislation related to foreign exchange, compliance with which is required for share issues.
FEMA: Acronym for Foreign Exchange Management Act, 1999.
Foreign Investment Policy of Government of India: Policy governing foreign investment in Private Sector Banks.
SEBI: Securities and Exchange Board of India. Regulatory body issuing guidelines that private sector banks must comply with.
Companies Act: Legislation that private sector banks must comply with.
Companies Act 2013: Legislation that private sector banks must comply with.
RBI Master Directions dated November 19, 2015: A related document regarding prior approval for acquisition of shares or voting rights.
Government of India: The governing body of India.
Urban Cooperative Banks: A type of bank excluded from the definition of Private Sector Banks in this context.
Foreign Banks: A type of bank excluded from the definition of Private Sector Banks in this context.
Reserve Bank of India Act, 1934: An act related to the Reserve Bank of India, relevant for definitions.
Public Issues: A method for banks to issue shares.
Initial Public Offer: A type of Public Issue.
Further Public Offer: A type of Public Issue.
Private Placement: A method for banks to issue shares.
Preferential Issue: A type of Private Placement.
Qualified Institutional ePlacement: A type of Private Placement.
Rights Issue: A method for banks to issue shares.
Bonus Issues: A method for banks to issue shares.
DBOD.No.BC.7616.13.10094 dated June 17, 1994: A circular repealed by these directions.
DBOD.No.PSBS.BC.7216.13.1009899 dated July 10, 1998: A circular repealed by these directions.
DBOD.No.PSBD.BC.9916.13.100200405 dated June 25, 2005: A circular repealed by these directions.
DBOD.No.PSBD.BC.9216.13.10020092010 dated April 20, 2010: A circular repealed by these directions.
Mumbai: Location of the Reserve Bank of India Central Office.
Prior approval for acquisition of shares or voting rights in private sector banks: RBI Master Direction related to share acquisition.
Section 12B 5 of Banking Regulation Act, 1949: Section of the Banking Regulation Act, 1949 that the bank shall ensure compliance with.
RBI/DBR/2015-16/21
Master Direction DBR.PSBD.No.95/16.13.100/2015-16 April 21, 2016
Master Direction - Issue and Pricing of shares by Private Sector Banks,
Directions, 2016
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In exercise of the powers conferred by 35 A of the Banking Regwulation Act, 1949 the
Reserve Bank of India being satisfied that it is necessary anda expedient in the public
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interest so to do, hereby, issues the Directions hereinafter sdpecified.
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CHAPTER – I
PRELIMINn
ARY
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1. Short Title and Commencement i
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(a) These Directions shall be callede the Reserve Bank of India (Issue and Pricing of
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Shares by Private Sector Bainks) Directions, 2016.
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(b) These directions shallr come into effect on the day they are placed on the official
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website of the Resterve Bank of India (RBI).
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2. Applicability
The provisions of these Directions shall apply to all private sector banks licensed by RBI
to operate in India.
3. Definitions
(i) In these Directions, unless the context otherwise requires, the terms herein shall bear
the meanings assigned to them below –
1“Private Sector Banks” means banks licensed to operate in India under Banking
Regulation Act, 1949, other than Urban Co-operative Banks, Foreign Banks and banks
licensed under specific Statutes.
(ii) All other expressions unless defined herein shall have the same meaning as have
been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of
India Act, 1934 or SEBI Guidelines or Companies Act and rules made thereunder or as
used in commercial parlance, as the case may be.
CHAPTER – II
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TYPES OF ISSUES
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4. Banks normally issue shares by way of:
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i) Public Issues
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a) Initial Public Offer t
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b) Further Public Offer
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ii) Private Placement
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a) Preferential Issue i
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b) Qualified Institutional ePlacement
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iii) Rights Issue Di
iv) Bonus Issues
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a CHAPTER III
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ISSUE AND PRICING OF SHARES - GENERAL PERMISSION
5 A private sector bank, both listed and unlisted, has general permission for issue of
shares through all the routes mentioned in Section 4 above subject to the following
conditions:
i. The issue of shares shall be in compliance with the provisions of Foreign
Exchange Management Act, 1999 (FEMA) and extant Foreign Investment Policy
of Government of India for Private Sector Banks.
ii. The issue of shares shall be in compliance with the extant SEBI guidelines,
provisions of Companies Act and rules made thereunder.
2iii. The issue of shares through any of the routes shall have the approval from the
bank’s Board / AGM, as the case may be in compliance with the Companies Act
2013 /SEBI guidelines.
iv. Pricing of shares through any of the routes by listed banks shall be as per SEBI
formula, while for unlisted banks the pricing shall be as per Companies Act and
rules made thereunder.
v. Allotment of shares to the investors under any of the routes shall be subject to
compliance with the extant RBI Master Directions dated November 19, 2015 on
Prior approval for acquisition of shares or voting rights in private sector banks
which requires investors to obtain specific prior approval of RBI if the proposed
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acquisition results in aggregate holding of 5 per cent or wmore of the paid-up
capital of the bank. a
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vi. The specific regulatory limits permitted to the shardeholders or the promoters /
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promoter group shall not be breached on account of fresh subscription, own
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entitlement, renouncement of rights or otherwise.
vii. On completion of allotment process subnject to compliance with the stipulation as
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at para 5 (v) above, if applicable, complete details of the issue shall be reported
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to RBI viz. date of issue, details of the type of issue, issue size, details of pricing,
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number and names of allotteres, post allotment shareholding position, etc, along
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with a copy of Board / AGM Resolution and prospectus / offer document in the
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format given in the scehedule to these Directions.
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REPEAL AND OTHER PROVISIONS
6. With the issue of these Directions, the instructions / guidelines contained in the
following circulars issued by the Reserve Bank stand repealed:
i. DBOD.No.BC.76/16.13.100/94 dated June 17, 1994.
ii. DBOD.No.PSBS.BC.72/16.13.100/98-99 dated July 10, 1998.
iii. DBOD.No.PSBD.BC.99/16.13.100/2004-05 dated June 25, 2005.
iv. DBOD.No.PSBD.BC.92/16.13.100/2009-2010 dated April 20, 2010.
7. All approvals given under the above circulars shall be deemed as given under these
Directions.
3SCHEDULE
Bank……………………
Address: ………………..
The Chief General Manager
Private Sector Banks Division
Department of Banking Regulation
Reserve Bank of India
Central Office, Mumbai
Dear Sir,
Details of issue of shares and aggregate shareholding1
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We give below the necessary information as per RBI Master Direction on Issue and Pricing of
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shares by Private Sector Banks.
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1) Details of issue of shares r
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Sr. Date Type Size of the issue raised No. of Prhe-issue Post-issue
No of the of the allottees t
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issue issue for the PWaid- reserves Paid- reserves *List of
issue up up shareholders
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No. of Face Premium Amoun o al al aggregate
shares value on each t raised i shareholding
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of share c of 5% or
each e above
share r
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* with date of RBI approval for such shareholding
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1 Aggregate shareholding has the same meaning as defined in RBI Master Directions on Prior approval
for acquisition of shares or voting rights in private sector banks. The bank shall ensure compliance with
Section 12B (5) of Banking Regulation Act, 1949 in respect of the above shareholders.
42) Format for Furnishing Details of aggregate shareholding2 of 5% or more post IPO/FPO/
Preferential issue / QIPs/ Rights Issue
Sr. Name of No. of % of total No. of % of Aggregate *% of total
No the Shares paid-up Shares Shares No. of paid-up Shares
Allottees held prior Share approved now Shares (i.e. aggregate
to prior to for allotted (post issue) percentage
Allotment Allotment Allotment to paid shareholding
up post issue)
shares
(A) (B) (C) (D) (A+C) (B+D)
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* If 5% or above, date of RBI approval for such shareholding
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Encl : t
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1) copy of the Board / AGM Resolution
2) Copy of the prospectus / offer document
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Date: ………… Signature (with name and
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i designation):
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…………………
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2 Aggregate shareholding has the same meaning as defined in RBI Master Directions on Prior approval
for acquisition of shares or voting rights in private sector banks. The bank shall ensure compliance with
Section 12B (5) of Banking Regulation Act, 1949 in respect of the above shareholders.
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