RBI panel suggests Financial Holding Company model
 24.05.11

A Reserve Bank of India (RBI) panel today suggested a new Financial Holding Company (FHC) structure  to allow business conglomerates to operate banks, insurance companies and NBFCs as subsidiaries through an umbrella organisation.

The new model, which seeks to align the Indian structure with international best practices, is expected to provide greater flexibility to FHC in raising capital and ensuring better utilisation of funds.

"The FHC model should be pursued as a preferred model for the financial sector in India," said the report of the RBI Working Group headed by Deputy Governor Shyamala Gopinath on which the apex bank has invited comments by stake holders by June-end.

India mainly follows the bank-subsidiary model under which the non-banking activities are carried out by the subsidiaries of bank or parent company.

The RBI panel has suggested that FHC model should be extended to all large financial groups, irrespective of whether they contain a bank or not.

"There can be banking FHCs controlling a bank and non-banking FHCs which do not contain a bank in the group," the panel said.

Making a case for enactment of a separate law to regulate financial holding companies, the panel said, "RBI should be designated as the regulator for FHCs".

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