RBI Bank Group Guidelines: Crisil Analysis

New Delhi, Dec 9 (PTI) The Reserve Bank of India's (RBI) final guidelines on the financial services businesses of commercial banks averted a major restructuring for 12 bank groups, Crisil Ratings said on Tuesday.

These banks accounted for 55 per cent of sectoral advances cumulatively.

The final guidelines are aimed at eliminating any regulatory arbitrage by aligning regulations across bank group entities, thus contributing to structural strengthening, while providing flexibility in business conduct.

According to Crisil Ratings, the final guidelines on the financial services businesses of commercial banks "provide flexibility with respect to overlapping lending activities within major bank groups. In the absence of this, 12 bank groups in India would have had to restructure their lending businesses".


Earlier, draft guidelines released in October 2024 had proposed that only one bank group entity could carry out a specific form of business, with no overlap in lending activities between the bank and its group entities.

To be sure, the RBI has retained several proposals from the draft in the final guidelines. These include the applicability of upper-layer scale-based norms for non-banking financial companies (NBFCs), regulatory restrictions on loans and advances applicable to banks, to NBFCs within bank groups, and the 20 per cent ceiling on a bank group's holding in an asset reconstruction company (ARC).

"If the draft guidelines had been implemented in total, 12 bank groups, accounting for 55 per cent of sectoral advances, would have needed restructuring of their lending businesses. This would have impacted 2-6 per cent of consolidated advances of these individual banks," Subha Sri Narayanan, Director at Crisil Ratings, said.

However, with the final guidelines permitting bank group entities to maintain overlapping lending businesses, subject to Board approval, there will be no disruption to their operations. More significantly, banks and their group entities can continue to leverage their respective strengths and serve distinct customer segments in a cost-effective manner, he added.