The Indian Banks’ Association (IBA) on Friday asked Reserve Bank to allow home-grown banks to set up intermediate holding companies for raising capital for their insurance, asset management and allied businesses.

Responding to the RBI’s discussion paper on the issue, IBA said this could be an interim solution until ideal conditions are created for banks to set up financial holding companies (FHC) and bank holding companies (BHC). These intermediate holding companies could be set up only with the prior approval of RBI and regulated as any other non-banking finance company, IBA suggested.

It also said that the apex bank can stipulate such conditions that it considered appropriate while granting approval for forming such intermediate holding companies. This would help create a framework for regulation of the intermediate holding firm, IBA said.

Advantages
With an intermediate holding company to take care of the capital needs of non-banking businesses, the parent company would not need to approach the market for raising capital for its non-banking entities frequently and thereby risk its balance-sheet, IBA contended. The interim solution has been suggested as creation of FHC and BHC structures were not possible at one go and would be time consuming.

On RBI’s concern that multi-layered structures in different jurisdictions would result in weak control, IBA said that all entities in a group would be subject to regulation by their respective regulators.