RBI to make public roadmap for introduction of holding co soon

The RBI is likely to soon come out with a roadmap for introducing a holding company structure for banks which will help conglomerates in the finance sector to generate funds for subsidiaries.  An RBI working group, headed by Deputy Governor Shyamala Gopinath, has almost finalised the discussion paper on this and it would be out soon for public comments, sources said. The holding company would be regulated by the Reserve Bank of India (RBI) and all the entities, including the new and the old, in the banking sector will follow the holding structure model once the central bank puts this in practice, according to the sources. A holding company can usually have a bank, life insurance firm, a general insurance and an asset management company as its subsidiaries. India now follows a universal bank model which can have financial services like insurance, asset management, securities business are separate subsidiaries of a bank.  For example, county''s largest bank SBI has SBI Life, SBI MF, SBI Capital etc as its subsidiaries now.  Following the announcement made by the RBI in its last annual policy, it constituted working group headed by Gopinath to recommend a roadmap for the introduction of a holding company structure together with the required legislative amendment or framework.  The other members of the committee include financial sector expert Y H Malegam, Prashant Saran, member SEBI, Keki Mistry Vice Chairman HDFC Ltd, R Sridharan Managing Director SBI, N S Kannan, Chief Financial Officer ICICI Bank. The last discussion paper on the Holding Companies in Banking Groups by Reserve Bank was made public in 2007.  The feedback on the discussion paper emphasised the need for introduction of bank holding companies or financial holding companies in India to ensure an orderly growth of financial conglomerates and better insulation of a bank from the reputation and other risks of the subsidiaries within the group.  The holding company model is expected to ease burden on banks for infusion of funds into capital-intensive subsidiaries like life insurance.  The Committee on Financial Sector Assessment (CFSA), in its report issued in March 2009, observed that given the lack of clarity in the existing statutes relating to the regulation and supervision of financial holding companies, the holding company structure as prevalent in the US for financial conglomerates is not currently in use in India.  The CFSA noted that the absence of the holding company structure in financial conglomerates exposes investors, depositors and the parent company to risks, strains the parent company''s ability to fund its own core business and could restrict the growth of the subsidiary business.