Tag: banking regulation

The government is eyeing changes to the Banking Regulation Act to bar new bank licence holders from certain specified business activities through the main banking entity.

The move is aimed at aligning certain sections of the Banking Regulation Act with the norms stipulated by the banking regulator, Reserve Bank of India.

Provisions being examined as part of the proposed amendment include rules which restrict new bank license holders to carry out specified business activities both from a separate entity and the bank.

At present, under Section 19 of the BR Act, a banking company can form any subsidiary for undertaking any business permissible for a banking company to undertake. “We have received representation from various stakeholders, this is being examined but no decision has been taken,” said a government official aware of the developments adding that there has been a demand to bring parity as existing banks including foreign lenders are allowed to undertake such business both through subsidiary and in-house.

In 2016, the RBI had issued “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector” under which it stipulated that specialised activities can be conducted through a separate entity after prior approval from RBI under the non-operating financial holding company or NOFHC. But, it has to be ensured that similar activities are not conducted through the bank.

In their representation, some stakeholders argued that the RBI guidelines and the provisions under the Banking Regulation Act are not in sync. The internal working group of RBI had also recommended that the concerns with regard to banks undertaking different activities through subsidiaries or associates need to be addressed through suitable regulations till the NOFHC structure is made feasible and operational.