Banks got good news from the Reserve Bank of India. The RBI dropped its plan to block group companies from doing the same types of business.
Banks and their non-bank finance arms can now share business lines. No need for banks to buy out or sell shares in those units.
RBI Governor Sanjay Malhotra shared the update after the monetary policy meeting on Wednesday. He said the final rules scrap the limit on business overlap between a bank and its group firms.
Bank boards will decide how to split business among group units, he noted.
This change should help private lenders like HDFC Bank, Axis Bank, and ICICI Bank. All have NBFC arms. HDFC owns HDB Financial Services. ICICI runs ICICI Home Finance. Axis has Axis Finance.
HDFC Bank shares climbed 1.5% on the National Stock Exchange that day. ICICI Bank gained 1.8%. Axis Bank rose 2.3%. The Nifty Bank index ended up 1.25%. The main Nifty 50 added 0.88%.
If the RBI rule had passed, banks would face tough choices. They might merge NBFCs in matching areas or sell stakes. Rural spots and small markets favor NBFCs for their easy rules and low costs, said Vijay Singh Gour, analyst at Mirae Asset Sharekhan.
NBFCs grow fast with fewer checks than banks. The new freedom lets them run solo under board plans. Banks and NBFCs can both push ahead.
Anil Gupta from Icra Ltd, a rating firm, said bank subs often overlap. They serve varied customers via banks and arms.
Some loans, like for used cars, cheap homes, or gold, need special staff and branches. That’s why banks use NBFC setups, he said.
In October 2024, the RBI released a draft. It said one entity per group can do a specific business type.
No two group firms can chase the same work or get the same licenses from regulators. Lending by the bank and group should not overlap, the draft said.