FIs to file quarterly liquidity reports

The joint regulatory committee chaired by the Reserve Bank of India (RBI) has directed all the major systematically important financial institutions (SIFIs) to file quarterly reports of their inter-group transactions.

The objective is to have a continuous monitoring of the liquidity situation of each of these conglomerates. The directive has been issued primarily to the financial institutions and banks, which act as 'parent' and fund numerous subsidiaries.

At present, such reports are submitted only during the annual inspection of the central bank. The SIFIs, which have been issued such directions after having preliminary discussions with the regulators, include State Bank of India (SBI), HDFC Bank and ICICI Bank, among several others.

According to banking sources, frequent reporting of the inter-group transactions has been directed to ensure that the subsidiaries floated by these SIFIs "� as parents "� do not overgrow their respective 'parent'.

This is because if operations of a subsidiary exceeds those of its parent, capital infusion in the subsidiary becomes a problem, which ultimately leads to a situation where the common people suffer as their money gets stuck.

Most of the parent companies fund their subsidiaries operating in areas like insurance, broking, mutual funds and primary dealership.

Explaining it further, the sources said the regulators do not want to repeat an ING Vysya-like situation where the bank had to sell off its insurance venture as it could no longer fund the venture owing to inadequate capital.

The committee, with members from all three regulators "� RBI, Insurance Regulatory and Development Authority (Irda) and the Securities and Exchange Board of India (Sebi), has been meeting quite often over the last few months to take a stock of the financial situation of all major SIFIs.

Earlier, the major players identified as SIFIs by the committee were financial intermediaries of major corporate groups like the Tatas, the Birlas and Bajaj, and non-banking financial companies such as Reliance Capital, GE Capital, Sahara, HDFC and Life Insurance Corporation of India.

The list of banks includes SBI, ICICI Bank, Punjab National Bank, Bank of India, Bank of Baroda, Citibank, Standard Chartered, Corporation Bank, IDBI Bank. Broking houses like DSP Merrill Lynch were also identified as SIFIs.

An entity is identified as an SIFI, if it has diversified into the insurance sector with business over Rs 100 crore or into the mutual fund business with the entity is included in the top 70 per cent of the segment in terms of assets under management, or into the deposits-taking, non-banking financial activity where the entity is reckoned in the top 70 per cent of the segment in terms of the deposit base.

Similarly, if the entity is a non-deposit-taking NBFC with a deposit base of over Rs 2,000 crore or has a primary dealership in government securities where it features among the top 70 per cent of the segment in terms of total turnover and a bank reckoned among the top 70 per cent of the segment in terms of the asset base.