It will result in cleaner holding structures within banking groups and ring-fence banks from change in the fortunes of subsidiaries
In a major overhaul of the equity holding structures of financial conglomerates, the Reserve Bank of India (RBI) is said to be looking at a holding company model for banks.
The move is expected soon and will entail guidelines on banks current exposure to their subsidiaries, which encompass businesses like investment banking, mutual funds, insurance, broking, credit cards, among others, Business Standard reported.
This will result in cleaner holding structures within banking groups and ring-fence banks from change in the fortunes of subsidiaries, the report suggests.
The proposed move will also give subsidiaries a breather from the capital constrains of their parent bank and will free up bank boards from the hassle of managing these subsidiaries.
Indian banks currently follow a flat structure with the main bank followed by various arms: insurance, broking, asset management, etc.
In the proposed model, RBI suggests a financial holding company (FHC) with the main banking division as a subsidiary, which in turn will have other banking arms, thus cutting down on regulatory overlaps as they all report to the banking regulator. Other subsidiaries like investment banking, asset management, insurance etc will now be arms of the FHC, the newspaper report suggests.
The move comes at a time when a number of state-run banks are hiving off their non-banking ventures to raise capital. The RBI move, if implemented, could lead to further consolidation in the financial space.
“It (new norms) will lead to cleaner within banking groups. The bank will not sit on the top of its subsidiaries and as an investor you will have better visibility of what you are getting into,” the report quoted a source as saying, adding that the FHC and its one-drop subsidiaries can be listed.As per the report, it will be up to the FHC to infuse capital in its arms, thus protecting it from the direct impact of losses in subsidiaries when the consolidated accounts are prepared.