Kalpana Morparia, the bank’s chief strategy and communications officer, had said earlier that “both these (insurance and asset management) companies need a fair amount of capital for growth. Beyond a point, the bank cannot put in more capital”. The central bank has put a limit of 20 per cent of a bank’s net worth on investments in financial services companies.
A senior SBI official said the RBI discussion paper had come as a surprise, but added the bank still had room to fund the growth of its life insurance subsidiary. The RBI paper also pointed out that an intermediate holding company would not fall within the regulatory purview of the Reserve Bank of India Act, being a company that confinesits activities to investing in group companies.
The paper also said a holding company that would own a bank and other companies in the group would help separate a banking entity from other group companies and hence the responsibility of funding the growth of subsidiaries. It added that the law should ensure that no unregulated entities were present within the structure. The RBI said the presence of any unregulated entity within a banking group might prove to be a “weaker link” in the structure providing scope for regulatory arbitrage. Another possible complication, the RBI paper said, could arise because of legal restrictions on foreign holding in subsidiaries like insurance companies. In insurance companies, direct or indirect foreign holding cannot exceed 26 per cent. However, according to IRDA regulations, when the Indian promoter company is a banking company, the proportion of foreign holding in such a banking company would not be considered for the purpose of calculating the 26 per cent foreign holding limit in an Indian insurance company. The paper said this exemption would not be applicable to an intermediate holding company.
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