Source: BS
Context:
The Reserve Bank of India (RBI) has allowed multiple entities within a bank group to undertake the same line of business, provided they cater to different customer segments and obtain mandatory board approval to justify any overlap.
Key Announcement
RBI has modified its earlier proposal to restrict a bank group to one entity per business activity. Now:
- Multiple entities in a bank group can undertake the same business,
- But only if they target different segments (e.g., geography, ticket size, customer profile),
- And they must have board-approved justification for overlaps.
This change provides greater operational flexibility to banks while ensuring governance discipline.
Why Did RBI Make This Change?
- Banking industry argued that customers and markets differ widely.
- Different group entities often specialise in distinct sectors/regions.
- A blanket restriction would have hampered business models, especially in retail lending, wealth management, payments, and credit subsidiaries.
RBI accepted the suggestion but added a governance check through mandatory board approval.
Background: 2024 Draft Circular
The draft regulatory framework (2024) had proposed:
- Only one entity per bank group may engage in a specific permissible business.
This has now been dropped.
New Relief for NBFC Group Entities of Banks
Exemption from Listing Requirement
RBI accepted industry demand to ease listing norms.
- NBFC group entities of banks that are not independently identified by RBI as NBFC-Upper Layer (NBFC-UL)
→ Are now exempt from mandatory listing.
Why This Matters
Under the Scale-Based Regulatory (SBR) framework:
- NBFCs classified as Upper Layer must list within 3 years of identification.
- Many bank-owned NBFCs feared unnecessary listing burdens.
- RBI has now clarified: only NBFCs explicitly identified as NBFC-UL have to list.
Anti-Circumvention Clause
To prevent banks from bypassing regulations by shifting activities to NBFC subsidiaries:
- Restrictions applicable to banks for specific loan segments
→ will also apply to NBFC group entities of banks.
Current NBFC-Upper Layer (NBFC-UL)
Largest NBFCs regulated similar to banks. Examples include:
- Bajaj Finance
- Shriram Finance
- Tata Capital
- HDB Financial Services
- 11 others (total 15)
