RBI says banks' group entities cannot be used to circumvent norms

Oct 4, 2024

Synopsis
India's central bank mandates that group entities of banks cannot bypass parent guidelines for restricted business activities. Banks need RBI's prior approval for new group activities. No bank can hold over 30% of equity in any company with its group entities. Small finance banks and payments banks must follow licensing conditions.

The Reserve Bank of India said on Friday group entities of banks shall not be used to circumvent guidelines applicable to the parent for carrying on business activities that are not otherwise permitted.

RBI reviewed the current guidelines in public interest, in order to ring-fence the banks' core business from other risk-bearing non-core businesses and to provide level-playing field to all the banks, according to a draft circular.

Indian laws permit banks to undertake various forms of businesses, in addition to the core business of banking.

These can be undertaken by the bank departmentally or through a separate group entity.

Banks will now require prior approval of the RBI to undertake any new activity through a group entity, it said.

Additionally, no bank can hold more than 30% of equity capital of investee company along with its other group entities, it added.

The conduct of activities by small finance banks and payments banks will also be subject to their respective licensing conditions and operating guidelines, the RBI said.

Comments on the draft circular are invited from banks and other stakeholders by Nov. 20.

[The Economic Times]