INDIA’S RBI EXPRESSES CONCERN AT HOLDING COMPANY PLANS

The Reserve Bank of India (RBI) has indicated that it is not comfortable with the plans of ICICI Bank and State Bank of India to float holding companies for their insurance and asset management operations. The RBI said that the intermediate holding structure as proposed by ICICI could create problems by over-extending the bank’s responsibilities. Ashvin Parekh of consultancy Ernst & Young Ashvin Parekh said on CNBC TV18 said a number of concerns were raised by the new proposals. He said that if the banks “intend to multiply this capital at the layer in between and then put it into the insurance business, that is where the problem is”. The RBI has said that an intermediate holding company could be used for “regulatory arbitrage”. The Insurance Regulatory & Development Authority (IRDA), having approved the proposals, is now seeking to distance itself from further controversy. IRDA chairman CS Rao said that “the ICICI Bank’s proposal is subject to RBI clearance, and if the RBI has doubts on the intermediate holding company structure, it is for the bank to convince RBI”. The RBI has taken a stricter interpretation of the plans, which could effectively increase the foreign interest in Indian insurers to more than 26%. It said that, as a regulator, it could approve the planned proposals, but that such a structure “might still be open to legal review”. State Bank of India said in response that the RBI’s discussion paper was an attempt to bring clarity on the matter of holding companies and the complexities associated with them, and that the paper itself was not a denial of permission. IRDA has also added a condition to its approval, stating that ICICI Bank would be required to step in with aid if the insurance joint venture found itself in need of financial help.