RBI: The Reserve Bank of India’s rules on commercial banks’ financial services operations tolerating overlapping lending activities within bank groups prevented the need for substantial restructuring by 12 bank groups, a study stated on Tuesday.

By harmonizing rules among bank group businesses, the final guidelines seek to avoid regulatory arbitrage and promote structural strengthening while allowing for flexibility in business activity, according to the Crisil Ratings study.

Approximately 55% of sectoral advances came from these banks together.

Previously, draft rules published in October 2024 suggested that a certain kind of activity may only be conducted by one bank group company, with no overlap in lending operations between the bank and its group businesses.

A 20% cap on a bank group’s ownership in an asset reconstruction company (ARC), regulatory limitations on loans and advances, and the applicability of upper-layer scale-based regulations for non-banking financial companies (NBFCs) were among the draft proposals that the central bank kept.

Twelve bank groups, which account for 55% of sectoral loans, would have required lending business reorganization if the proposed recommendations had been fully implemented. According to Subha Sri Narayanan, director of Crisil Ratings, this would have affected 2–6% of these individual banks’ combined loans.

“There will be no interruption to their activities, however, since the final rules allow bank group units to continue operating overlapping lending businesses, subject to Board permission. More importantly, banks and associated group companies may keep using their unique advantages to provide cost-effective services to different consumer categories,” she said.

According to Vani Ojasvi, Associate Director of Crisil Ratings, there are now 13 ARCs in which one or more banks own more than 20% of the shares. Banks will be required to partly sell by March 2028 in cases where the ownership over this statutory level.

In order to balance risks across businesses and reduce regulatory arbitrage, the guidelines have also imposed limitations on certain loan sectors for bank group entities, similar to those for banks.