Both are similar to a mutual fund as they enable small and medium investors to pool their savings in a common fund with the potential of earning higher rates. They allow investors to take advantage of investment opportunities in a wider variety of instruments, which would not normally be available to them as individual investors.
Promoters of new banks are given time but ultimately they should reduce equity, shareholding and control to 15 percent.
The Banking Regulation Act merely states that no one shall own more than 5 percent in a bank, except with RBI permission. And it is in the exercise of this power that RBI has been granting licences to several promoters and allowing them to hold even 51 percent stake for starters.
What is apparently violated is an RBI assumption that banks ought to be widely held so that no promoter or single entity can use deposits collected from savers to serve their relatives, friends or cronies.
The underlying assumption is that a bank that is widely held will be professionally run. The point is recent events have shown that this assumption may not often be correct.
This reality has brought forth several responses. One set, like HR Khan, believe the assumption that wide distribution of ownership and control will prevent conflicted loans needs to be reviewed. Promoters with higher stakes have more skin in the game and will hence run banks well.
So the May and the Feb guidelines need to be reworked. The second set of experts believe an old rule must not be set aside summarily. RBI put in those shareholding caps with a reason.
Will one want a Ramesh Gelli kind of promoter to have 40 percent ownership or for that matter a Tayal of Bank of Rajasthan fame?
Bank licences today are available on tap and we must make rules for all time, not just for outstanding bankers like Uday Kotak. A third set believes no rule needs to be changed. There is another reason why Kotak should be permitted to maintain control.
Assuming there comes a time when FIIs want to flee Ems for some external reasons, these foreign funds can quit in a hurry and remain away for years. From a financial stability perspective, it may make sense to allow the likes of Kotak a larger stake in banks.
Should the regulator allow itself to be dodged by a regulatee, however outstanding? May be one way out for the RBI is to disallow the current issue to be treated as kosher, but give Kotak more time to bring down his stake. The market may not be able to absorb the 25, odd crore rupees of shares that Kotak will have to sell.
There is no doubt it will be a right decision to allow Kotak more control over his bank, but one must not do the right thing in the wrong way.
First Published on Aug 6, a study of investors attitude towards mutual fund with special reference to inversotrs in solapur city pritam p. kothari1 & shivganga c ‘‘a study on investors preference towards mutual funds’’ a thesis submitted to aditya college for management studies and research affiliated to bangalore university in partial.
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