RBI reviewing regulation of banks’ non-core business | The Financial Express

RBI reviewing regulation of banks’ non-core business

Internal panel wants explicit division from core business; amendments to Banking Regulation Act likely.

RBI reviewing regulation of banks’ non-core business
The Banking Regulation Act may be amended to include the changes. (IE)

The Reserve Bank of India (RBI) is planning to tweak its regulatory framework governing non-banking businesses, including insurance and asset management, undertaken by banks and their group entities, sources familiar with the development told FE.

The idea is to remove regulatory arbitrage, if any, in the present system, they said.

The Banking Regulation Act may be amended to include the changes.

An internal panel, set up by the central bank for this purpose, has recommended a clearer and more explicit segregation of core and non-core businesses of banks and the group entities, the sources said.

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“The banking regulation department (of the RBI) has conveyed to banks its decision to review the framework, and asked them to submit their inputs,” one of the sources said.

Subsequently, senior executives of key banks whose group entities are engaged in non-banking businesses, including State Bank of India, Punjab National Bank, HDFC Bank, ICICI Bank, Axis Bank, Bank of Baroda and Canara Bank, held a meeting last month to deliberate on the issue. The banks are expected to submit their views through the Indian Banks’ Association after internal discussions.

The scope of the regulatory revamp could also cover issues like the need for further alignment of norms for both banks and non-banking financial companies, and consolidation of group entities of banks that undertake non-banking activities. It may also focus on any conflict of interests between an entity’s core and non-core businesses.

Given that all major banks and their group entities are currently involved in non-core businesses, any regulatory overhaul assumes significance, as they will have to alter their strategy in sync with the revised norms, a senior banker said.

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The proposed move is the latest in a series of efforts by the central bank to continue to bolster its regulatory architecture relating to financial institutions, in sync with the changing demands of time. In recent years, it has come out with revised regulatory frameworks for NBFCs, payment banks and co-operatives. Similarly, in September, it issued guidelines for all lenders to protect the data of borrowers using digital lending applications from abuse.

The government, too, has been asking state-run banks to review their non-core businesses and shed them wherever feasible, especially after the bad loan crisis flared up.

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First published on: 28-10-2022 at 02:00 IST