Shareholding in Banking Companies in India

The section 12 of the banking regulation act 1949 regulates the Shareholding in Banking Companies in India. No shareholder of banking company can exercise voting rights more than 10 per cent of the total voting rights of all the shareholders of the banking company. Reserve Bank may increase such ceiling on voting rights from ten per cent to twenty-six per cent.

Shareholding in Banking Companies

Transfer of shares of Banking Company

The Reserve Bank of India has stipulated the banking companies that before making any transfer of shares of banking company which involves transfer of five percent or more of share capital or voting rights, it must obtain prior approval of RBI.

Restriction on commission, brokerage, discount

Section 13 of Banking Regulation act puts restriction on banking company regarding payment of commission, brokerage, discount etc on its sale of shares. No banking company can pay out directly or indirectly by way of commission, brokerage, discount or remuneration in any form an amount exceeding in the aggregate two and half per cent of the price at which the said shares are issued.

Restriction on payment of dividend

Section 13 of Banking Regulation act states that a banking company cannot pay any dividend on its shares until all its capitalised expenses have been completely written off. Such expenses includes preliminary expenses, organisation expenses, share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets.

Eligibility criteria for declaration of dividend

RBI has set out the eligibility criteria for declaration of dividend. Accordingly only those banks are eligible to declare dividends that have:

  • CRAR of at least 9 % for preceding two completed years and the accounting year for which it proposes to declare dividend
  • Net NPA less than 7 %.

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