Banks seek relief on branch expansion

Urge RBI not to factor NBFC arm's network for new licences

Banks have urged the Reserve Bank of India (RBI) not to take into account the network of their NBFC subsidiaries while deciding on their new branch and ATM licences.

The Indian Banks' Association (IBA) has made the recommendation in response to an RBI internal working group report on regulatory arbitrage in the financial sector.

The RBI working group had recommended that while examining applications for new branch licences from banks, the presence of their NBFC subsidiaries at various centres should also be taken into account.

In its response to the RBI report, IBA has suggested that branch networks of NBFCs, owned by the banks, should be treated as independent entities and not as their branches.

IBA said the branch network of a bank and its subsidiary NBFC are distinct entities as the cost structure, customer profile and market reach are completely different. The presence of a subsidiary NBFC restricts the scope for expansion, feel many bankers.

Citibank would be the most affected bank by the RBI's proposal as it has a consumer finance subsidiary called Citifinancial with branches across the country.

Banking sources said if a bank like Citibank wants to open a branch in a town where its NBFC subsidiary already has presence, then RBI may not consider the request at all.

Under the RBI's new branch licensing policy, banks have to submit their plans for setting up new branches and ATMs annually.

The framework of consolidated supervision may be applied to a NBFC promoted by a foreign bank under the automatic route and the branch of that foreign bank, even though the parent subsidiary relationship does not exist between the NBFC and the branch, the working group has said.

A consolidated supervision of the parent bank and its NBFC subsidiary would be adequate as the prudential requirements at a group level cover the areas of capital adequacy, single and group borrower norms and exposure to capital markets, it said.