Bank St stews over RBI’s holding co prod

How are we supposed to raise money to expand to critical mass, ask bankers

MUMBAI: The Reserve Bank of India’s (RBI) dislike for intermediate holding companies has banks fretting on where and how will they raise much-needed money to gain size and traction before the global giants arrive in 2009.

So much so, they will be petitioning the regulator through the Indian Banks’ Association (IBA), requesting it to go soft on the issue.

A meeting of senior officials of select banks chaired by the IBA chief executive H N Sinor was held on Thursday.

“Concerns were that it was not easy for banks to follow the holding company model proposed by the RBI at once. Also, it was felt that if the RBI does not allow an intermediate company, it would starve banks for much needed capital and hinder expansion, mainly of the public sector banks,” said an official from the IBA present at the meeting who did not wish to be named. The bankers’ meeting comes just 10 days after the RBI said it is worried about such structures being set up by banks to manage non-core businesses such as insurance and asset management.

Mint Road is worried that such entities may not fall into the regulatory ambit or will be difficult to supervise. Instead of intermediate holding companies, the RBI therefore proposed a financial holding company (FHC) model for managing large conglomerates.

But bankers said such models may take too long to formulate particularly for public sector banks such as the State Bank of India as these have to be passed by Parliament.

“The view was that we can’t change into financial holding companies at one go. It will take a long time and in the meanwhile intermediate companies are a good option,” said a senior official from a private sector bank present at the meeting.

But, he said, the points raised by RBI on intermediate companies need to be addressed because in the long run financial holding companies may become a necessity in a liberalised economy.

Bankers have suggested that to address the RBI’s concerns on regulation of intermediate holding companies, such companies could offer themselves to regulations as a subsidiary of a bank. “These companies could be guided by NBFC guidelines in place. It will also help nationalised banks like SBI to much needed capital,” the private bank official said.

The IBA meeting was a dress rehersal to the managing committee (chairman level) meeting on the same subject due on September 13. The meeting was attended by senior bankers from Punjab National Bank, Bank of Baroda, State Bank of India and ICICI Bank among others.

The points discussed at the meeting are set to be the main features of the chairman level meeting next week. Suggestions from the IBA managing committee will be submitted to the RBI for consideration.