RBI proposes supervision of financial conglomerates

By Our Banking Bureau | 15 Jun 2004

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Mumbai: An inter-regulatory working group of the RBI, SEBI and IRDA yesterday proposed identifying `financial conglomerates' (FCs) and putting them under a special composite regulatory watch.

A group would be designated as a 'Financial Conglomerate' if it has significant operations in at least two financial market segments; for example, banking and insurance or insurance and asset management.

Some of the groups that may be asked to step up reporting and find themselves under increased scrutiny are top public sector banks such as State Bank of India, Bank of Baroda and Punjab National Bank and private sector giants such as ICICI Bank and HDFC Bank. Foreign banks such as Citibank and Standard Chartered Bank would also be classified as FCs.

As per the criteria suggested by the working group, even large corporate clusters such as Reliance, Tata, Birla, Bajaj, Kotak, Sundaram and Sahara groups, which have significant presence in the business of finance, would be seen as FCs. NBFCs and merchant bankers such as Merrill Lynch and GE Capital could also be defined as conglomerates.

Entities identified as FCs would report to a principal regulator - one of RBI, SEBI, NHB, IRDA, and if the pension fund regulator is set up, that too - that would have the primary responsibility of supervising it. The idea is to capture intra-group transactions and exposures within the identified FC and its large exposures to outside counter-parties.

A designated entity within each group would collate data from all other group entities and submit to the principal regulator. A formal mechanism will be set up for inter-regulatory exchange of information.

The intra-group transactions between group entities within a financial conglomerate may significantly impact on the financial performance and capital adequacy position of the individual entities involved.

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