The Reserve Bank of India (RBI) has released draft proposals aimed at tightening the operations between banks and their non-bank subsidiaries, a move that is expected to significantly impact leading private sector banks such as HDFC Bank, Axis Bank, Kotak Mahindra Bank, and Federal Bank.
According to analysts from Jeffries, these proposals, which pertain to the “forms of business and prudential regulation for investments” by banks, could reshape how banks and their group entities manage their business operations. The RBI mandates that within a banking group, only one entity will be permitted to conduct a particular form of business, preventing multiple entities from holding the same category of license or conducting overlapping business activities, including lending.
Furthermore, the RBI draft specifies that non-bank subsidiaries of banks will be classified as upper layer Non-Banking Financial Companies (NBFCs) and will face regulatory restrictions similar to those imposed on banks. These regulations include caps on loans and advances.
The new guidelines are set to take effect two years after the final circular is issued, offering banks and their subsidiaries a transitional period to comply with the new rules. Analysts believe this development could drive significant operational changes across banking groups, particularly affecting the lending strategies of their non-bank entities.
