Source: ET
Context:
The Reserve Bank of India (RBI) has released its final guidelines for bank groups, aiming to strengthen structural supervision while allowing business flexibility. These apply to commercial banks and their subsidiaries, NBFCs, and other group entities. The rules are a revision of the October 2024 draft, which had been criticized for being overly restrictive.
Key Highlights
- Overlapping Business Allowed: Unlike the draft, banks and their group entities can now engage in overlapping lending activities, subject to board approval.
- Prudential Safeguards Retained: Scale-based norms for NBFCs, limits on loans and exposures, and a 20% cap on ARC holdings ensure risk management.
- Compliance Timeline: Bank groups must comply by 31 March 2028, giving time to adjust structures and governance.
Regulatory Framework
- An NBFC is required to register with RBI if:
- Financial assets constitute more than 50% of total assets, and
- Income from financial assets is at least 50% of gross income.
- Core investment companies with ≥90% of net assets in group companies are also treated as NBFCs.
- RBI has historically recommended one business per entity to ensure clear ownership and accountability, easing supervisory and compliance burdens.
Why It Matters
- Reduces Disruption: Avoids forced restructuring of large groups, protecting ~55% of sectoral advances.
- Maintains Flexibility: Groups can leverage synergies across banking, NBFC, and housing finance arms.
- Controls Systemic Risk: Prudential norms ensure uniform supervision across all group entities.
