The Reserve Bank of India has proposed greater supervision of entities by respective regulators -- RBI, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority -- as it laid down a set of criteria for the identification of financial conglomerates.
Entities with a significant presence in the respective financial market segment and any group with operations in at least one more financial market segment are called financial conglomerates as per the recommendations of the working group on financial conglomerates.
The new reporting framework will track any unusual trend in respect of intra-group transactions above the threshold levels: Rs 1 crore (Rs 10 million) for fund-based and Rs 10 crore (Rs 100 million) for non-fund based transactions.
It will also look into build up of any disproportionate exposure (both fund based as well as non-fund based) of any entity to other group entities, and outstanding positions in respect of each entity vis-à-vis every other group entity as on the reporting date.
Moreover, crossholdings, intra-group advisory and service arrangements as well as commonality of directors and senior executives will also be looked into.
As per the criteria laid out by the report, banks, mutual funds, deposit-taking non-banking finance companies and primary dealers would be categorised as financial conglomerates if they are included in the top 70 per cent of their respective segments in terms of asset base and/or turnover.
Insurance companies will fall into this category if their turnover is in excess of Rs 100 crore (Rs 1 billion). Similarly non-deposit taking NBFCs will come under greater supervision should their asset base be more than Rs 2,000 crore (Rs 20 billion).
The framework would also cover entities having an overseas parent or holding company as in the case of foreign banks for instance, and satisfying the specified criteria mentioned above.
Further, broking arms of all identified groups and housing finance companies belonging to the identified groups will also be included within the framework for reporting purposes.
The framework envisages periodic sharing of information among regulators on concerns arising out of analysis of data received and any other information outside the reporting format that might have a bearing on the group as a whole.
At present, there is no legislative framework in place for inter-regulatory coordination. The group recommends that one of the existing technical committees consisting of all the three regulators may function as a standing inter-regulatory forum to address all issues arising out the proposed framework.
In addition to entities falling under the jurisdiction of RBI, Sebi, IRDA, and the National Housing Board, the report stated that in due course the segment covered by Pension Fund Regulatory and Development Authority would also be reviewed.
The working group has decided to keep rural regional banks, depositories, special purpose vehicles (including trusts), asset reconstruction companies and associates of State Bank of India out of this purview.
However, the exercise of classifying financial conglomerates will be subject to periodic review.
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