The Indian Banks Association has requested the Reserve Bank of India to enhance the proposed cap on holding in private banks to 34 per cent against 10 per cent mentioned in the draft earlier.

IBA, which was working on an alternative model that would do away with the 10 per cent cap submitted its proposal to RBI yesterday has proposed three major changes. The changes were submitted in consultation with private bank representatives who have agreed to the proposals.

Other major recommendations included that no single corporate can acquire more than 26 per cent in a private bank, which now stands at 10 per cent.

IBA has also said that in case of transfer of holding between five and ten per cent, one should not require any permission, if the entity had already received permission to acquire five per cent from RBI.

It also proposed that acquisition up to five per cent by regulated bodies like mutual funds and pension and provident funds should not require any permission from RBI.

FDI investment when made directly or individually, which was proposed to be capped at 10 per cent should be enhanced to 34 per cent -- according to IBA.

The banking body also recommended that small private banks with small capital should be provided adequate time to enhance their capital base to Rs 300 crore (Rs 3 billion) on a case to case basis.

"We have proposed that RBI should stipulate that no single individual or group of individuals or corporate entities should hold more than 34 per cent in a private bank against 10 per cent proposed earlier," explained chief executive, IBA, H N Sinor while speaking to Business Standard.

"RBI had proposed that the cap on holding was with the view to bring in good corporate governance among private banks. The 10 per cent level however had its negatives for in an event of set back and requirement of additional capital, the core management of a bank would not be in a position to fall back upon anyone to bring in additional capital," explained K Unnikrishnan, senior vice president policy, IBA.

"This was because entities holding less than 10 per cent would be doing it more for the purpose of investment and small investors do not have ownership interest or the capability to pump in large funds," he added. "With one large holder there will be always the possibility of making someone responsible," he added.

Bank staff demand not feasible

One day after 10 lakh (1 million) bank employees across the country struck work, V Leeladhar, chairman & managing director, Union Bank of India, and chairman, Indian Banks' Association, said on Wednesday that 20 per cent hike on the wage bill demanded by employees was beyond the capability of even the strongest banks.

"This is a year when treasury profits have evaporated and a situation has come when provisions have to be made for the depreciation losses on the treasury front," said Leeladhar.

"We revised our offer substantially in the recent round of negotiations and are ready to offer a 134 per cent increase of wages at the individual level. But the unions are demanding a minimum of 12.25 per cent over the entire wage bill without considering the fact that 1,30,000 employees left the banking system through the voluntary retirement scheme," he said.

"Another issue is that of mobility. We want to be able to transfer staff within a state. A lot of people are needed in rural branches that now typically operate with just three people. Unions are ready for transfers only within a district," he said.