Money & Banking

Intra-group borrowings: Revised FINCON on the way for capturing more info: RBI

Our Bureau Mumbai | Updated on December 31, 2018 Published on December 31, 2018

RBI   -  Reuters

In addition, it is also important to have an oversight of groups that are engaged in financial intermediation with significant spillover

In the backdrop of the IL&FS imbroglio, the Reserve Bank of India said it will soon introduce a revised Financial Conglomerate Returns (FINCON) format to capture additional detailed information related to borrowings made by each group entity in a financial conglomerate (FC).

Further, the bifurcation in terms of short-term borrowings (up to one year), and long-term borrowings (more than one year), will also be obtained. This will help in ascertaining the dependence of the financial conglomerates’ group entities on banks and short-term borrowings.

An FC is a group of entities whose activities are in the financial sector. In India, a group is identified as an FC on the basis of its significant presence in two or more market segments (banking, insurance, securities, non-banking finance and pension fund).

The RBI, in its financial stability report, highlighted that complex and camouflaged inter-group linkages through credit support and potency of spillover effects in times of turmoil (through banking sector linkages) are becoming important considerations for identifying FCs in the Indian context.

In addition, it is also important to have an oversight of groups that are engaged in financial intermediation with significant spillover potential and yet have a significant part of their group revenue coming from non-financial businesses, it added.

“As the IL&FS incident in the domestic financial markets illustrates, conglomerate structures also pose some clear risks: intra-group transactions create opportunities for regulatory arbitrage by bypassing regulations related to exposure norms and opportunities to mask leverage through double gearing and complex inter-group structures, leading to a possible spillover of risks to the financial system in times of business turmoil,” said the report.

At present, the oversight of financial conglomerates is being carried out by an Inter-Regulatory Forum for Monitoring Financial Conglomerates (IRF-FC), which is one of the four working groups set up under the aegis of the Financial Stability and Development Council Sub-Committee (FSDC-SC).

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Published on December 31, 2018
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