Banks urge RBI to extend deadline for overlapping lending rules – Banking & Finance News

Banks have requested the Reserve Bank of India (RBI) to extend the deadline for adhering to new guidelines prohibiting overlap in lending activities between banks and their group entities. In their comments submitted through the Indian Banks Association (IBA), the banks sought an extension beyond the proposed two-year deadline.

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

“Bankers have expressed concerns that the two-year time frame to comply with the new guidelines is not enough,” a senior bank official said. “Each bank has submitted individual assessments to the IBA, highlighting the challenges they face in meeting this deadline,” he added.

The banking sector regulator in October published a draft circular on “forms of activity and prudential regulations for investments”, stipulating that only a single entity within a banking group can undertake a particular form of activity authorized. The norms would apply two years after the RBI issues the final circular, the circular said.

“Only one entity within a banking group (the bank and the group entities) can carry out a particular form of authorized activity. Multiple entities within a banking group should not carry out the same activities or hold/acquire the same category of license/authorization or registration with a financial sector regulator,” the circular said. “Furthermore, there should be no overlap in the lending activities undertaken by the bank and its group entities.”

The new directive will have a significant impact on several banks because they have subsidiaries carrying out the same sector of activity. For example, HDFC Bank, ICICI Bank, Axis BankKotak Mahindra Bank, Canara Bank And Federal Bank have subsidiaries that engage 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 emphasized that subsidiaries play a crucial role in achieving specific goals, such as reaching customers in rural areas more effectively.

“Some NBFCs are engaged in activities, such as education loans, which require specialization. Banks are also relying on NBFCs as they offer greater flexibility in their operations,” said a bank official.

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