Large financial groups will adopt a holding company model irrespective of their having a bank, an RBI appointed working group has suggested. All new banks and insurance companies, will also have to operate under the Financial Holding Company (FHC) framework. There could be banking and non-banking FHCs.
All financial groups having a bank also need to convert to the FHC model in a time bound manner.
It recommends a separate regulatory framework for FHCs and a new Act for their regulation. The RBI will be regulator for FHCs, while the function of regulation will be done by a separate unit within RBI with staff from RBI and other regulators. A supervision mechanism was also suggested.
A limit will be set on the expansion of non-banking business after the existing financial groups dominated by banks migrate to the holding company structure (Banking FHCs) so that the banking business continues to remain the dominant activity of
the group.
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