RBI panel recommends holding company model for financial sector
23 May 2011
A Reserve Bank of India (RBI) working group headed by deputy governor Shyamala Gopinath has suggested adoption of the holding company model for the entire financial sector, including major banks, in the country.
"The model can be extended to all large financial groups - irrespective of whether they contain a bank or not. Therefore, there can be banking FHCs controlling a bank and non-banking FHCs which do not contain a bank in the group," the report suggested.
While the financial holding company (FHC) model should be pursued as a preferred model for the financial sector in India, the report suggested a whole new regulatory framework for financial holding companies.
A separate legislation should be undertaken for regulation of financial holding companies while also carrying out suitable amendments to Acts governing public sector banks, the Companies Act and other relevant laws, the report suggested.
The provisions of the new Act governing FHCs should have the effect of amending all the relevant provisions of individual Acts and have over-riding powers over other Acts in order to avoid any conflict, the report said.
The RBI should continue to regulate the holding companies as well and the Act should specifically designate RBI as the regulator for financial holding companies.
However, the function of FHC regulation should be undertaken by a separate unit within the RBI with staff drawn from both within and from other regulators.
