Monetary Board sets maximum shareholding limit in finance companies

• Lays out very long roadmap spanning till 2029 for 75% control and reduced to 50% by 2033
• Directive not applicable for finance company of banks and those that may qualify for special approval based on conditions
• MB holds right to reduce maximum shareholding below 50% on special circumstances

The Monetary Board of the Central Bank has set new maximum shareholding limits in standalone licensed finance companies (LFCs).

The directive issued yesterday will not apply to a LFC which is a subsidiary of a licenced bank or those with special approval for an exemption.

The new limits set are relevant LFCs will have to reduce direct or indirect holding of shares carrying voting rights by any shareholder up to a maximum of 75% of the issued capital carrying voting rights by 31 December 2029 and to 50% by 31 December 2033.

Notwithstanding the new directions the Monetary Board may restrict the maximum limit of shares carrying voting rights held by a major shareholder of a LFC to a limit below 50% of the issued capital carrying voting rights of the LFC, on the following grounds,

I. Such major shareholder, being an individual, is determined by the Monetary Board as an individual not fit and proper

II. Such major shareholder, being a company, a body corporate or an unincorporated body, has one or more directors or Chief Executive Officer who are determined by the Monetary Board as individuals not fit and proper

III. In the opinion of the Monetary Board that such major shareholder exerts significant influence or excessive power in decision-making and operations of the LFC that would threaten the sound and prudent management of the LFC

In the event any LFC contravenes or fails to comply with any provisions of this direction or requirement made or imposed thereunder, the Monetary Board, having considered a report made by the Director, shall take any measure including the following,

I. Freeze distribution of dividends or repatriation of profits of such LFC, as and when necessary

II. Restrict voting rights on shares held by any shareholder in excess of the specified limits, with effect from 1 January 2030

III. Prohibit the issue of further shares carrying voting rights or pursue any offer made to shareholders who hold such shares in excess of specified limits

IV. Restrict expansion of business operations of such LFC

V. Impose monetary penalties as determined by the Monetary Board

VI. Impose disclosure requirements on non-compliances

Central Bank said a special approval by the Monetary Board may be given to hold shares carrying voting rights of an LFC in excess of the limits specified in Direction 4.1, below, and shall require such LFC to reduce such shareholding to the limit as may be determined by the Monetary Board, on a case-by-case basis, on a staggered basis over a longer time period, subject to submission of a viable plan by the respective LFC, under the following special circumstances,

• Restructuring of a problematic/weak LFC
• LFCs undergoing a consolidation process
• In view of stability of an LFC or the sector as a whole