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