A Reserve Bank of India (RBI) working group’s recommendation that all large financial groups should function under the umbrella of a financial holding company (FHC) could be a precursor to allowing industrial houses to float banks as it will help the central bank regulate them better, analysts and economists said. An FHC is an entity under which different subsidiaries of a corporate group, whether they are in the banking business or not, will function. As per the working group’s recommendation, an FHC will be registered as a non-banking finance company (NBFC) and regulated by RBI. A unit, formed by members from different regulators, within RBI, will regulate the FHC. A different Act is proposed for the FHC and, if necessary, all the existing Acts that govern Indian corporations will be amended, the RBI working group has suggested. If the recommendations are accepted, RBI will regulate all financial conglomerates. This could make RBI a super regulator, in direct confrontation with the Financial Services Development Council, or FSDC. But the government is unlikely to cede control over all such conglomerates to the central bank. The model will help build a Chinese wall between a corporate group and its bank, said Jay Shankar, director and chief economist at Religare Capital Markets Ltd. The panel clearly recommended if a bank comes under the FHC structure, the focus of the group should be on banking. “RBI is clearly not comfortable with business groups entering the banking business. As far as the holding company structure is concerned, only the FHC will come under RBI while other subsidiaries are likely to be under respective regulators. Therefore, chances of a clash among regulators due to this appears less,” a Mumbai-based lawyer said. He did not want to be named as RBI is yet to take a call on the recommendations, on which comments from the public have been sought until June end. The recommendation that all large financial groups should function under an FHC structure and be regulated by RBI even if they do not have a bank in their fold could put RBI in conflict with other regulators such as the Insurance Regulatory and Development Authority (Irda), the Securities and Exchange Board of India (Sebi), analysts point out. Sebi chairman U.K. Sinha and IRDA chief Hari Narayan did not respond to calls and messages. Shankar said it’s up to the government to demarcate the roles of the different regulators. Analysts said there is need for better regulatory co-ordination and intelligence sharing through a body such as the FSDC. Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd, said: “These proposals probably aim at addressing the arbitrage opportunities between NBFCs and banks. Banks have access to cheap deposits while NBFCs have easier capital adequacy norms.” “There is concern about some large brokerages which do not have enough capital and are also not NBFCs by definition. These companies could be regulated by the proposed new unit of RBI,” said an analyst with a foreign bank asking not to be named because he is not authorized to speak to the media. A 10-member sub-committee of the FSDC, that includes chiefs of Sebi and Irda and is chaired by the RBI governor, met on Tuesday to discuss concerns arising from regulatory gaps in the NBFC sector and regulation of government-sponsored finance firms. “The sub-committee agreed to strengthen regulatory framework for wealth management activities, to formalise an institutional mechanism for supervision of financial conglomerates and put in place a robust reporting platform for over-the-counter derivatives market,” an RBI release said.
Mint
No comments:
Post a Comment