IBA bats for intermediate holding firms

Indian Banks' Association (IBA) has decided to back ICICI Bank and State Bank of India's (SBI) proposals to float an intermediate holding company for owning their insurance and asset management businesses, as an interim arrangement.

Senior officials from select banks who attended a meeting at the IBA today arrived at a consensus that they should petition the Reserve Bank of India (RBI) to allow banks to set up intermediary holding companies till legal and regulatory changes are brought about to shift to a bank of a financial holding company.

The IBA would now formally draft its response to the RBI's discussion paper that rejected proposals to set up intermediate holding companies and instead suggested bank/financial holding companies which would own the bank and other subsidiaries within a group.

The RBI has given three weeks to respond to the discussion paper, which was put in public domain on August 27, 2007.

IBA chief executive, H N Sinor, said IBA has decided to urge the RBI to facilitate the intermediate holding model as an interim measure. "We appreciate that we have to move to the financial holding model. However, this will take some time as it needs regulatory and legislative changes. To ensure that the Indian banking conglomerates are not starved for capital, this (intermediate holding) structure should be permitted in the interim,'' he said.

Vishakha Mulye, group chief financial officer at ICICI Bank, Paresh Sukthankar, head credit and market risk at HDFC Bank, and senior officials from Housing Development Finance Corporation, State Bank of India, Punjab National Bank and Canara Bank attended the meeting.

Sinor said, "We appreciate the risk highlighted by the RBI in the discussion paper. We have examined each of the issues. We also explored if there are any alternatives, but discovered that there are hardly any except for the intermediate holding company model. This intermediate company can be considered as a non-banking finance company under the investment company category. We believe that banks will need the prior approval of RBI to float any subsidiary. Even if a company is floated under the Companies Act, the RBI can make any stipulation that could give it comfort."