👍Banks urge RBI to extend deadline for overlapping lending rules – Banking & Finance News | The Financial Express

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The banking sector regulator issued a draft circular on ‘forms of business and prudential regulations for investments’ in October, stating that only a single entity within a bank group can undertake a particular form of permissible business.

Banks urge RBI to extend deadline for overlapping lending rules.

Banks have requested the Reserve Bank of India (RBI) to extend the timeline for adhering to new guidelines that prohibit overlapping lending activities between banks and their group entities. In their feedback submitted through the Indian Banks’ Association (IBA), banks have sought an extension beyond the proposed two-year timeframe.

According to sources, some banks have sought a relaxation of up to five years to fully comply with the regulations.

“Bankers have expressed concerns that the two-year timeline for complying with the new guidelines is insufficient,” a senior bank official said. “Each bank has submitted individual assessments to the IBA, outlining the challenges it faces in meeting this deadline,” he added.

The banking sector regulator issued a draft circular on ‘forms of business and prudential regulations for investments’ in October, stating that only a single entity within a bank group can undertake a particular form of permissible business. The norms would apply two years after the final circular is issued by the RBI, the circular said.

“Only a single entity within a bank group (the bank and its group entities) shall undertake a particular form of permissible business. Multiple entities within a bank group shall not undertake the same business or hold/acquire the same category of licence/authorisation or registration from any financial sector regulator,” said the circular. “Further, there shall be no overlap in the lending activities undertaken by the bank and its group entities.”

The new guideline will have a significant impact on several banks as they have subsidiaries engaged in the same line of business. For example, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Canara Bank and Federal Bank have subsidiaries which are engaged in similar lending activities. Axis Bank has Axis Finance as its NBFC subsidiary, ICICI Bank has ICICI Home Finance, HDFC Bank has HDB Financial Services, Kotak Mahindra Bank has Kotak Mahindra Prime and Kotak Mahindra Investments, and Federal Bank has Fedbank Financial Services.

Bank officials recently held a meeting at the IBA to discuss the implications of the new guidelines. Bankers emphasised that subsidiaries play a crucial role in achieving specific objectives, such as reaching customers in rural areas more efficiently.

“Some of the NBFCs are engaged in businesses, such as education loans, which require specialisation. Banks also rely on NBFCs as there is greater flexibility in their operations,” said a bank official.

According to the draft guidelines, banks will have to approach the RBI’s Department of Regulation to undertake any new activity through a group entity, other than those already permitted.