The Hindu Business Line : Intermediate holding co critical for growth: IBA

Mumbai, Sept. 14 The intermediate holding company model being proposed by ICICI Bank and State Bank of India will insulate banks from the risks of raising capital for non-banking business, as the holding company would be able to raise funds independent of the bank.

It will also limit exposure of the parent bank and its investors to the non-banking business.

This is the view expressed by the Indian Banks’ Association in its response to the discussion paper on the holding companies released by the Reserve Bank of India.

Bankers are of the opinion that the holding company would reduce risk for the parent bank, as their investment in the holding company would have to fall within the prescribed limit of 20 per cent of the banks’ capital and reserves. This is the limit for all investments by any bank in non-banking financial entities. Banks would have to obtain RBI’s approval for any fresh investment, including the intermediate holding company, the IBA pointed out.

RBI concerns

The central bank had in its discussion paper last month had expressed concerns that the intermediate holding company model will not come under its regulatory supervisions, as they are not required to be registered as non-banking finance companies.

In response to this concern, IBA said, “An intermediate holding company in banking group could be regulated as any other non-banking finance company. Further, at the time of granting approval for formation of such a company, RBI can stipulate such conditions as it considers appropriate.”

IBA has appealed to the RBI to allow Indian banks to set up an intermediate holding company in the interim period till such time as they are able to set up financial holding (FHC) or bank holding company (BHC). Creating an FHC or a BHC would involve taxation and regulatory issues, because it would involve transfer of shareholdings or assets between the entities, said IBA.

Talking about holding company Mr V Leeladhar, Deputy Governor, RBI said, “We will soon finalise guidelines on banks creating holding companies for their subsidiaries. We have floated a discussion paper for the same and are awaiting response, once we get it, we will consolidate them,” he said at the sidelines of a seminar on Thursday.

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Intermediate holding co critical for growth: IBA