RBI working on holding company norms for banks

Mumbai: The Reserve Bank of India (RBI) is examining all proposals from banks on setting up holding companies and will soon finalise guidelines for banks creating holding companies for their subsidiary businesses like insurance and asset management.

Banks like ICICI and SBI want to set up these companies, and sell a partial stake in these companies to FIIs to unlock the value of the life insurance businesses, both of which are valued at $7 billion, V Leeladhar deputy governor of the RBI, said.

"We have seen the experiences world over. We have devoted one paragraph in the paper on that. Let us not preclose options and we welcome suggestions. What is the best method? We don''t know, that''s why it is on the website,'' Leeladhar said.

"The responses have started coming...The moment the deadline is over, we would consolidate all responses and wherever necessary we would try to modify it," he added.

Asked on the preparedness of banks for the Basel-II framework compliance, the deputy governor said that banks were "broadly on course".

"For the last two years every quarter, we have been scrutinising the progress which has been made by each bank. Now, we are confident that major banks are in a position to meet all the requirements," he said.

Basel II norms, recommended by Basel committee on banking supervision, require banks to put aside a specified portion of capital to guard against financial and operational risks.

"It will not be a cake walk, there would be problems... But in establishing a practice, which is considered world- class, if we are facing some problems here and there, I think we should meet them squarely," he said.

RBI said Indian banks are not affected by the US sub prime crisis. However, the possibility of banks over leveraging holding companies is worrying the RBI. Also, the possible unregulated status of holding companies is also a big worry for it.

The Indian Banks Association (IBA) has also shown support for RBI. IBA thinks RBI should draft and regulate guidelines for banks'' holding companies but wants quick resolution of holding company issues.