The banking regulator is expected to come out with a more stringent regulatory framework. The change is likely to be effected through an amendment to the Banking Regulation Act.
Most of the public sector banks have established businesses which include Insurancefactoring and housing finance, The government has been asking them for some time to exit such investments and unlock capital to finance their core business. An official said it now wants the lenders to do a detailed assessment and prepare the ground for a possible change in norms.
“The reserve Bank of India The existing framework is being reviewed with a view to separating core and non-core businesses of banks to prevent conflict of interest between the two and be proactive so that they can integrate with the new framework without any disruption.
Another person familiar with the discussions said the issue figured in the ongoing discussions between the state-run lenders and the government on a three-year specific strategic roadmap for the banks. Each bank’s case is being reviewed separately.
“Banks should pursue these norms as part of their business strategy,” he said.
The central bank seeks to limit the scope of regulatory intermediation currently available to banks and their entities and has been holding consultations with stakeholders since August this year.
“This could mean alignment of guidelines for banks and NBFCs, consolidation of bank group entities that undertake similar activities, and limit on investment by banks in non-core business entities,” said a senior bank official who could not be named.
According to experts, the interconnection between different sub-industries within financial services poses significant financial stability risks due to any contagion caused by second-order effects of challenges within one or more sub-industries.
Vivek said, “The revised framework will have higher regulatory oversight requirements from bank holding companies and may increase the cost of compliance for both private sector and public sector banks, but given the challenges in implementation, public sector banks will Even more for.” Iyer, partner and national leader, financial services, at consulting firm Grant Thornton in India.
In April, after the PSB Manthan – a meeting of the leadership of state-run banks – the government had asked banks to prepare a three-year roadmap for their business strategy. also suggested public sector banks Explore greater collaboration amongst themselves, with larger banks sharing their best practices with smaller banks and guiding them in areas where they need more expertise.