ICICI Bank Likely To Face Stiff RBI Test

The proposal of ICICI Bank, the country''s second largest lender, to set up a holding company for insurance and mutual fund businesses might hit a roadblock at the Reserve Bank of India (RBI) though Finance Minister P Chidambaram on August 21 approved the proposal. The approval follows clearance from the Foreign Investment Promotion Board (FIPB) subject to a nod from the RBI, which is still to take a view on such a holding structure for banks to own insurance ventures. Banking sources said such a holding subsidiary structure could possibly render RBI''s guidelines on para banking infructuous.

Finance ministry officials said the proposal would not go through if the RBI objects to it.The RBI had earlier rejected Catholic Syrian Bank''s proposal to sell a 15 per cent stake to Hong Kong-based AIF Capital, an Asian private equity firm. The Kerala-based bank then had to amend the plans to sell the stake equally to three private equity firms -- AIF Capital, London''s Gartmore and New York-based Siguler Guff. It went ahead with seeking approvals of the Insurance Regulatory and Development Authority (IRDA) and the Foreign Investment Promotion Board (FIPB) for selling a 24 per cent stake in the holding company, ICICI Financial Services, the formation of which solely rests on the receipt of approval from the RBI. In contrast, SBI, which has applied to the RBI for forming a similar holding firm for its insurance and mutual fund ventures, would not be approaching both the IRDA and the FIPB till it gets an approval from the banking regulator.

ICICI Bank plans to transfer its stakes in insurance and mutual fund joint ventures to the proposed holding company. This would enable it to transfer the burden of funding the highly capital intensive life insurance business.