The final guidelines from the Reserve Bank of India (RBI) on the financial services business of commercial banks mean that a major restructuring is no longer required and has been deferred for 12 bank groups. This information was provided on Tuesday, noting that these banks cumulatively hold a 55 percent share of sectoral advances.
The aim of the final guidelines is to eliminate any regulatory arbitrage by aligning regulations within bank group entities. This will provide structural strength and also make business operations more robust.
According to the analysis, the final guidelines on commercial banks’ financial services businesses “provide clarity regarding overlapping lending activities within major bank groups. In their absence, 12 bank groups in India would have had to restructure their lending businesses.”
Banks Allowed to Continue Overlapping Loan Business
Previously, the draft guidelines issued in October 2024 had proposed that only one bank group entity could conduct a specific type of business, with no overlap in lending activities between the bank and its group entities.
“If the draft guidelines had been implemented in their entirety, 12 bank groups (which have a 55 percent share in sectoral advances) would have needed to restructure their lending businesses. This would have impacted two to six percent of the consolidated advances of these individual banks.”
However, as per the final guidelines, bank group entities are permitted to continue ‘overlapping’ lending businesses subject to approval by their boards of directors. This will cause no disruption to their operations. More importantly, banks and their group entities can leverage their respective capabilities to serve different customer segments in a cost-effective manner.
