Banking growth: More policy blowback – Subsidiaries refused

ICICI Bank Headquarters
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Where banks throughout the world are now deleveraging having hoped for an extra bit of govt sponsored handholding to survive that was refused in the Inidan and Chinese environment faceoffs between regulators and bankers are more regular as banks alternate between traditional models on one end to unverified arbitrage and sustainable global opportunities on the other. The RBI diktat of merging all subsidiary businesses and banking business to a single Financial Operating Holding Company ( FOHC) some time six months aago is one of those. Banks that have already set up elaborate structures incl. ICICI may be able to do that without much fuss, but unlikely find it critical to their operations to do so and expect the regulator to understand.

Similarly, public sector banks have tried for long that they be alllowed to circumvent uniform compensation

South Indian Bank
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guidelines that apply to them so that specialized talent may be held accountable to existing / new profitable lines of business at middle and senior levels. Bank of India’s proposal to hire such staff at different compensation thru a new people subsidiary was rejected by the RBI according to Business Standard(BS)

South Indian Bank was also asked to conduct business in gold loans directly thru branches instead of setting up a NBFC (presumably) subsidiary and Axis Bank and ICICI Bank were earlier stopped from setting up separate Infracos after differential funding norms were offered to NBFCs in the sector allowing a distinct 15:1 leverage

RBI diktats suggest it approves subsidiaries only for businesses that cannot be conducted thru branches and current licenses such as insurance and securities broking which is now expected to moved to an Operating company rathwr than current conditions where these are subsidiaries of the banks ror have stakes from the banks.

LVB was refused choice to set up a distinct housing subsidiary, probably in which more banks would have used the strategy to ‘follow the herd’ and unnecessarily crowded the space without effective business growth

A separate report highlights how Indian companies have banking business in branches abroad with PSEs SBI and BOB leading with 50 branches each and ICICI Bank having come up int he Private Sector with 19 such offices outside the country. All these offices end up without transaction banking mandates or even an effective market share of NRI deposits and are being asked by select governments to concentrate on local lending in that jurisdiction without any apparent results

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