RBI to finalize holding co norms, banks on course for Basel II

RBI to finalize holding co norms, banks on course for Basel II


Mumbai: Banking regulator Reserve Bank will soon finalise guidelines for banks creating holding companies for their subsidiary businesses like insurance and asset management, a top RBI official indicated here on 13 September.

“The responses have started coming...The moment the deadline is over, we would consolidate all responses and wherever necessary we would try to modify it," RBI Deputy Governor V Leeladhar told reporters on the sidelines of the Ficci Global Banking Conference. He, however, did not disclose the timeline for the release of final guidelines in this regard.

“This is for the first time we are going to have a holding company in Indian financial sector. Starting this, we want it in a proper way taking into account all plus and negative points. It is not something which we are going to superimpose on banks," he clarified.

Top banks like ICICI and State Bank of India had recently expressed their intent to create holding companies for their subsidiary businesses of insurance and asset management.

The umbrella holding company could then raise capital for these businesses, which need funds to fuel their growth. Close on heels of ICICI Bank proposing the model, Reserve Bank floated a discussion paper on the subject and sought feedback, the deadline for which is approaching.

The discussion paper expressed RBI reservations on the holding company structure proposed by banks citing the complexity of regulation.

“We do not have a final view on whatever ideas we have put on the discussion paper...We need time to go through the responses," he said. On Indian Banks Association’s suggestion of treating the holding company as a non-banking financial company for regulatory purposes, Leeladhar declined to comment.

“Let us see what they have to say...Let us not foreclose option...We welcome suggestions from everybody. We do not have a preferred model. Let us see what responses are coming and then we would finalise," he said.

Asked on the preparedness of banks for the Basel-II framework compliance, the Deputy Governor said that banks were “broadly on course".

“For the last two years every quarter, we have been scrutinizing the progress which has been made by each bank. Now, we are confident that major banks are in a position to meet all the requirements," he said.

Basel II norms, recommended by Basel Committee on Banking Supervision, require banks to put aside a portion of capital to guard against financial and operational risks. “It will not be a cake walk, there would be problems... But in establishing a practice, which is considered world-class, if we are facing some problems here and there, I think we should meet them squarely," he said.

On the status of ICICI and State Bank of India’s application to Singapore Monetary Authority for a qualified full banking licence, the Deputy Governor said the request was being considered by the Singapore regulator.

Similarly, some proposals from Singapore banks for operation in India were also being considered by the RBI.