(MENAFN- KNN India)
New Delhi, Dec 23 (KNN) Banks have collectively appealed to the Reserve bank of India (RBI) through the Indian Banks' Association (IBA) for an extended timeline to comply with new regulations that restrict overlapping lending activities between banks and their group entities.
While the current proposal allows for a two-year implementation period, some banks are requesting up to five years for full compliance.
The RBI's draft circular on 'forms of business and prudential regulations for investments,' issued in October, mandates that only one entity within a banking group can engage in a specific type of permissible business.
The regulations stipulate that multiple entities within a bank group cannot undertake identical business activities or hold the same category of licenses from financial sector regulators, effectively eliminating overlap in lending operations between banks and their group entities.
The new guidelines are expected to significantly impact major financial institutions including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Canara Bank, and Federal Bank, all of which currently operate subsidiaries engaged in parallel lending activities.
For instance, Axis Bank operates Axis Finance as its NBFC subsidiary, while ICICI Bank maintains ICICI Home Finance, and HDFC Bank runs HDB Financial Services.
During a recent meeting at the IBA, bank officials emphasised the crucial role of subsidiaries in achieving specific business objectives, particularly in rural market penetration.
Banking executives highlighted that certain NBFC operations, such as education loans, require specialised expertise, and banks value the operational flexibility that NBFCs provide.
Under the proposed guidelines, banks will need to seek approval from the RBI's Department of Regulation before initiating any new activities through group entities beyond those currently permitted.
A senior banking official, speaking about the implementation challenges, noted that individual banks have submitted detailed assessments to the IBA outlining their specific obstacles in meeting the two-year deadline.
These submissions form part of the sector's broader response to the RBI's proposed reforms of banking group structures.
(KNN Bureau)
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