RBI guidelines on bank business and investment drops proposed bar on overlap with group firms

Reserve Bank of India

The Reserve Bank of India has finalized guidelines on bank business and investments, dropping the proposed bar on overlap with group entities.

“Based on feedback and review, the proposed bar on overlap in the businesses undertaken by a bank and its group entity is being removed,” RBI Governor Sanjay Malhotra said during monetary policy announcement on October 1.

The central bank’s circular aims to streamline the activities being undertaken by banks and their group entities while providing more operational freedom to the banks and Non-Operative Financial Holding Company (NOFHCs) for equity investments and setting up group entities respectively, RBI said.

RBI Circular on Overlap of Business

The draft proposal shared on October 4, 2024 had said that only a single entity within a bank group can undertake a particular form of permissible business. The RBI draft said multiple entities within a bank group shall not undertake the same business or hold or acquire the same category of license from any financial sector regulator.

One of the draft changes said that accepting deposits and lending money shall necessarily be carried out departmentally. However, other businesses like mutual funds, insurance, pension fund management, investment advisory services, portfolio management services, and broking services cannot be carried out departmentally, but only through a group entity.

RBI MPC Outcome

The RBI’s Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 5.5 percent on October 1, second time in a row and kept the stance unchanged to 'Neutral'. The MPC considered it prudent to wait for impact of policy actions to play our before charting the next policy action. As a result, the standing deposit facility (SDF) rate remains unchanged at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent.

The decision was in line with Moneycontrol’s poll of economists and bankers who predicted the RBI’s Monetary Policy Committee (MPC) will hold rates due to comfort from the higher growth in the first quarter while taking time to assess the data on the Goods and Services Tax (GST) reforms.