Reserve Bank of India’s panel on private has backed the continuation of Non-Operative Financial Holding Company (NOFHC) as the preferred structure for setting up new universal

However, NOFHC may be mandatory only where the individual promoters and promoting entities/ converting entities have other group entities.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services (APAS), said that NOFHC structure is important to ring-fence interest of depositors and enhance corporate governance in banking entities.

Banks, currently under NOFHC structure, may be allowed to exit from such a structure if they do not have other group entities in their fold, the panel said.

While licensed before 2013 may move to an NOFHC structure at their discretion, these banks will have to migrate to the NOFHC structure within five years after attaining a tax-neutral status.

The Reserve Bank should engage with the government to ensure that the tax provisions treat the NOFHC as a pass-through structure, said the panel.

The panel further said that concerns about banks undertaking different activities through subsidiaries joint ventures (JVs)/associates should be addressed through suitable regulations till the NOFHC structure is made feasible and operational.

The Reserve Bank may frame suitable regulations and the banks must be fully comply with them within two years.

The panel said that the bank and its existing subsidiaries, JVs and associates should be barred from engaging in similar activity that a bank is permitted to undertake departmentally and the term ‘similar activity’ should be defined clearly.

If a group entity desires to continue undertaking any lending activity, then bank should not undertake that line of business departmentally. The group entity shall be subject to the prudential norms as applicable to banks for the respective business activity.

Banks should not be permitted to form or acquire or associate with any new entity (subsidiary, JV or Associate). They should not be permitted to make fresh investments in existing subsidiary, JV or associate for any financial activity. Investments in ARCs may be as per extant norms.

However, banks may be permitted to make total investments in financial or non-financial services company which is not a subsidiary/JV/associate upto 20 per cent of the bank’s paid up share capital and reserves.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Source link