Companies & Sectors
Banks to be affected by RBI move on group exposure: Moody's

Moody's said the proposed rules by RBI would hurt companies that depend on parent banks for capital and brand support

New Delhi: State Bank of India (SBI) and ICICI Bank are among those that would be affected if Reserve Bank of India (RBI) implements its proposed guidelines on banks' exposure to their group entities, credit rating agency Moody's said, reports PTI.


Last week, the RBI released draft guidelines to limit banks' exposure to their own group non-financial and financial entities.


As per Moody's, the proposed rules would hurt companies that depend on parent banks for capital and brand support, particularly those with large international operations, or those that operate insurance, securities or asset management businesses that need capital and liquidity support to meet their business needs.


"If the RBI adopts them, the new guidelines would be credit positive for India's banks, but credit negative for group companies that rely on parent banks for capital and brand support," Moody's Investors Service said in a report.


It said the "affected banks" include ICICI Bank, State Bank of India, Bank of India, Bank of Baroda and Kotak Mahindra Bank.


"The guidelines would lead these banks to re-examine the financial support they provide to group businesses as anything exceeding the stipulated limits would be detrimental to their standalone capital calculations and thus their business growth," Moody's said.


The rules, it said, would benefit India's banks because they would reduce their concentration and contagion risks from group activities.


The guidelines, if implemented, would limit to 5% of paid-up capital and reserves a bank's exposure to a single group non-financial entity, while the maximum exposure to regulated financial services companies would be 10%.


However, Moody's said that for the time being, these draft guidelines do not help the banks in any way cope with their immediate asset quality challenges owing to the difficult environment.


Finance Ministry asks banks, insurers to move regulators on misconduct by professionals

According to CVC, professionals empanelled by banks and insurance companies like advocates, engineers or valuers, chartered accountants and surveyors are sometimes involved in unfair practices including false or distorted reports which lead to distressed assets of the banks or unfair claims settled in insurance companies

New Delhi: The Finance Ministry has asked state-owned banks and insurance companies to take up the issue of misconduct by professionals like advocates and chartered accountants with their regulating bodies like Institute of Chartered Accountants of India (ICAI) or Bar Council of India (BCI), reports PTI.


The ministry has issued the directive to heads of public sector banks, financial institutes and insurance companies on an observation made by Central Vigilance Commission (CVC) which had said sometimes professionals present misleading reports which lead to distress assets and misleading claims.


"Banks and insurance companies should approach the professional bodies with complaints of professional misconduct ...for suitable action," the ministry said.


The professional bodies mentioned in the communication include, Bar Council of India, ICAI, Institute of Cost and Works Accountants (ICWA) and Institute of Engineers.


The CVC had observed that "it has come to light that the professionals empanelled by banks\insurance companies viz advocates, engineers\valuers, chartered accountants, surveyors etc., are sometimes involved in unfair practices including false\distorted reports which ultimately lead to distressed assets of the banks or unfair claims settled in insurance companies".


While fixing up accountability, the maximum that the banks can do is to de-panel such professionals to future assignments.


"Since, decisions taken based on such reports result in huge losses to the organisations, mere de-panelment does not serve as deterrence to such unscrupulous professions," the Commission had observed.


The Ministry has asked the public sector banks (PSBs), financial institutions (FIs) and insurance companies to insert an "enabling clause" in the tenure of appointment or engagement of professionals.


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