India central bank mulls imposing 49% overseas ownership cap for new lenders

RBI may also enforce new lenders to meet a minimum capital requirement of $109mn.

India’s central bank said it may cap foreign shareholding at 49 percent for new lenders for five years as it considers issuing banking licenses for the first time since 2004.

New lenders would have to sell shares within two years and open at least one in four branches in rural areas that have a population of no more than 9,999 people, the Reserve Bank of India said in draft guidelines posted on its website on Monday. The banks may also need to meet a minimum capital requirement of 5 billion rupees ($109 million).

Companies including Larsen & Toubro Ltd. (LT) and billionaire Anil Ambani’s Reliance ADA Group have expressed interest in licenses to operate in a market with credit growth forecast at 18 percent for the year ending March. New entrants would compete with Mumbai-based State Bank of India (SBIN), which accounts for almost a quarter of the nation’s loans, and ICICI Bank Ltd. (ICICIBC).

“The guideline asking for a listing within two years appears to be a bit impractical,” said Hemant Kanoria, chairman and managing director SREI Infrastructure Finance Ltd. “It will be very difficult for branches in the rural areas to start generating profits in the first two years.”

The company will wait for final guidelines before making a decision on applying for a license, Kanoria said in a phone interview today. The regulator is seeking feedback by Oct. 31.

India’s Bankex index, which tracks 14 stocks including State Bank and ICICI, climbed 4.1 percent today, trimming its loss this year to 20 percent.

View the full story in Bloomberg.