Cobrapost | RBI moots review of all bank licences--Business Standard-19th May 2013
Note to finance ministry says adherence to 'fit and proper' guidelines needs to be evaluated
The Reserve Bank of India has proposed review of all banking licences from the 'fit and proper’ angle following the allegations made by Cobrapost.
In a report to the department of financial services in the finance ministry, the central bank said “all banking licenses need to be reviewed from the fit and proper criteria which involves assessment of the promoters, management, CEOs, even for the existing banks.”
The issue basically relates to inter-connectedness among entities forming part of a banking conglomerate having insurance, mutual funds and brokerage arms in its ambit. The RBI note said the review was necessary to ensure that arms length was maintained from these various operations to avoid a systemic risk.
However, the central bank said this was a judgmental call, and the decision needed to be taken after due deliberations.
The RBI letter also suggested taking up the issue in the Financial Stability and Development Council (FSDC) or its sub-committee so that the issue can be approached in a holistic manner and after getting feedback from other regulatory agencies.
The country’s three largest private banks - ICICI Bank, HDFC Bank and Axis Bank - were last month named by online portal Cobrapost for indulging in money laundering. The sting operation conducted by the portal alleged that some bank officials had offered to launder unaccounted money by investing in insurance schemes.
However, the RBI report did not find merit in the allegations of money laundering in the banking system.
ICICI Bank and HDFC Bank have insurance subsidiaries but Axis Bank does not have one. It offers insurance products of Tata AIG and Max Life Insurance Company as a corporate agent.
Earlier this year, RBI ringfenced banking operations from other activities of promoters and group companies in its guidelines for new banks.
"Promoter/promoter froups’ business model and business culture should not be misaligned with the banking model and their business should not potentially put the bank and the banking system at risk on account of group activities," it had said.
Promoter of any new bank will have to float a non-operative financial holding company (NOFHC), as per the guidelines.
The NOFHC will hold the bank as well as all other financial services entities of the group regulated by RBI or other financial sector regulators. The objective, the guidelines say is that the holding company should ring fence the regulated financial services entities of the group, including the bank from other activities of the group and also that the bank should be ring fenced from other regulated financial activities of the group.
As such, only non-financial services companies, entities and non-operative financial holding company in the group and individuals belonging to promoter group will be allowed to hold shares in the NOFHC. Financial services entities whose shares are held by the NOFHC cannot be shareholders
In a report to the department of financial services in the finance ministry, the central bank said “all banking licenses need to be reviewed from the fit and proper criteria which involves assessment of the promoters, management, CEOs, even for the existing banks.”
The issue basically relates to inter-connectedness among entities forming part of a banking conglomerate having insurance, mutual funds and brokerage arms in its ambit. The RBI note said the review was necessary to ensure that arms length was maintained from these various operations to avoid a systemic risk.
However, the central bank said this was a judgmental call, and the decision needed to be taken after due deliberations.
The RBI letter also suggested taking up the issue in the Financial Stability and Development Council (FSDC) or its sub-committee so that the issue can be approached in a holistic manner and after getting feedback from other regulatory agencies.
The country’s three largest private banks - ICICI Bank, HDFC Bank and Axis Bank - were last month named by online portal Cobrapost for indulging in money laundering. The sting operation conducted by the portal alleged that some bank officials had offered to launder unaccounted money by investing in insurance schemes.
However, the RBI report did not find merit in the allegations of money laundering in the banking system.
ICICI Bank and HDFC Bank have insurance subsidiaries but Axis Bank does not have one. It offers insurance products of Tata AIG and Max Life Insurance Company as a corporate agent.
Earlier this year, RBI ringfenced banking operations from other activities of promoters and group companies in its guidelines for new banks.
"Promoter/promoter froups’ business model and business culture should not be misaligned with the banking model and their business should not potentially put the bank and the banking system at risk on account of group activities," it had said.
Promoter of any new bank will have to float a non-operative financial holding company (NOFHC), as per the guidelines.
The NOFHC will hold the bank as well as all other financial services entities of the group regulated by RBI or other financial sector regulators. The objective, the guidelines say is that the holding company should ring fence the regulated financial services entities of the group, including the bank from other activities of the group and also that the bank should be ring fenced from other regulated financial activities of the group.
As such, only non-financial services companies, entities and non-operative financial holding company in the group and individuals belonging to promoter group will be allowed to hold shares in the NOFHC. Financial services entities whose shares are held by the NOFHC cannot be shareholders
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