NEWS
RBI sheds proposed restriction on bank-NBFC overlap
RBI is removing proposed regulatory overlap restriction from final guidelines. This will be positive for major banks such as HDFC Bank and ICICI Bank which have NBFC subsidiaries.
RBI is removing proposed regulatory overlap restriction from final guidelines. This will be positive for major banks such as HDFC Bank and ICICI Bank which have NBFC subsidiaries.
The Reserve Bank of India (RBI) has withdrawn its proposal to stop group entities of a bank from carrying out similar business activities.
This is a major relief for banks who own non-banking financial companies (NBFCs) operating in similar lines of business. They will not be required to restructure by merging or divesting stakes in their subsidiary.
“The proposed regulatory restriction on overlap in the businesses undertaken by a bank and its group entities is being removed from the final guidelines. The strategic allocation of business streams among group entities will be left to the wisdom of bank boards,” said RBI Governor Sanjay Malhotra.
NBFCs, which have lower costs and less compliance levels than banks, can operate as separate entities with board level policy. Banks and NBFCs can focus on their own growth charts.
The RBI, in a draft circular issued in October 2024, had stated that multiple entities within a bank group could not undertake the same business or hold/acquire the same category of licence, authorisation, or registration from any financial sector regulator. It also stated that overlapping lending activities between a bank and its group entities would not be permitted.
Analysts say the relaxation will be positive for major banks such as HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Federal Bank, which have NBFC subsidiaries operating in similar business activities.
HDFC Bank owns HDB Financial Services, ICICI Bank owns ICICI Home Finance and Axis Bank owns Axis Finance. Kotak Mahindra Bank runs Kotak Mahindra Prime and Kotak Mahindra Investments, while Federal Bank owns Fedbank Financial Services.
Anil Gupta, senior vice president and co-group head at rating agency ICRA, noted that various subsidiaries of banks have overlapping businesses as they cater to different profiles of customer segments through banks and subsidiaries.
Certain product segments like used cars, affordable home loans and gold loans may also require different employee skillsets and branch networks, requiring banks to operate through the NBFC subsidiary model, Gupta said.
