The issue of holding structures for financial conglomerates undertaking various activities like insurance, asset management, merchant banking, investment banking and broking is being hotly debated. The Reserve Bank of India (RBI) has indicated that it is not comfortable with Intermediate Holding Company (IHC) structures which do not fall under the RBI's regulation and this may result in regulatory arbitrage. The regulator favors simpler BHC/FHC structures, minimum cross-holdings and adequate legal framework. Advantages like better risk control and ability to undertake riskier activities like commodity broking resulting from BHC/FHC structures make this an appropriate time for redesigning holding company structures in accordance with international standards.

Banking services play a vital role in India's growth story. This sector provides the necessary support for the financial architecture for the country's rapid progress. Strong financial services sector with their ability to withstand risks is the lubricant for any economy. India is witnessing a growth in the emergence of financial conglomerates. This is leading to controversies and concerns over risk-management. This article highlights the present debate on the structure of Bank Holding Companies or Financial Holding Companies (BHCs/FHCs) and the Reserve Bank of India's (RBI) discussion on the BHCs/FHCs. (Refer Figure 1 and 2)

International Scenario: Deregulation and financial consolidation the world over have led to the development of FHCs. They take up the activities of commercial banking, mutual funds and others under the same corporate umbrella. Two holding company models viz., BHC model and FHC model are the main models in the international context.

Companies that own or control one or more banks are known as the BHCs. Under the Bank Holding Act of 1956, the Federal Reserve regulates BHCs in the US. BHCs can make only limited investments in non-banking companies. S

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