Guidelines for holding firms by Nov-end

MONETARY POLICY MID-TERM REVIEW 2007-08/ SUPERVISION AND REGULATION

With several leading banks like the State Bank of India and ICICI bank wanting to set up holding companies to transfer their life insurance and asset management companies, the RBI is proposed to come out with a holding company structure by end-November 2007.

Earlier, on August 27 the apex bank had released a discussion paper in which it expressed its discomfort with banks floating intermediate holding companies to transfer their insurance and asset management business.

The banking regulator has since then suggested a bank holding company (BHC) or a financial holding company (FHC) model in which bank and non-bank subsidiaries in a banking group will be owned by the holding firm.

The banking regulator is of the view that banks are custodians of public deposits. Under the intermediate holding company model, the depositors will have to pay for any losses suffered by the insurance and asset management businesses.

"The depositor at the time of parking his savings with a bank is unaware of the possible risk. Failure of the insurance company to meet the obligations will indirectly put pressure on the resources of the bank ,'' said senior RBI official.