Regulators to keep a watchful eye on top cos

MUMBAI: Some of the biggest names in Corporate India figure in the list identified by regulators in financial markets for monitoring intra-group exposures and activities. In keeping with the growing emphasis on global financial stability and also back home, an inter-regulatory group has kick-started the process of monitoring top financial conglomerates. The list of such conglomerates which have been identified for this exercise includes the Reliance group, Tata Group, State Bank of India, ICICI, Citigroup, IDBI, the Bajaj group which has interests in the financial sector through a couple of firms, Standard Chartered Bank, Kotak Mahindra Group, HDFC and LIC, besides the Sahara Group and GE Capital in the non-banking finance companies segment, according to officials. The heads of all regulators in the financial markets — Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India and the newly-set up Pension Fund Regulatory and Development Authority of India had, at a recent meeting, discussed these financial conglomerates and the supervisory approach towards them. Financial conglomerates have been defined as those in which group entities have a significant presence in various financial market segments. Besides, the group would have operations in at least one or more financial markets. A close monitoring on a regular basis of the market exposure of these entities and their intra-group ceilings and transactions is underway, keeping in view the potential risks they hold. A financial health check is on to ward off the potentially destabilising impact on the domestic markets in the event of a crisis in any of the group entities of a financial conglomerate. Under the scanner are large intra-group transactions — reflected in the equity and debt markets, loans and also in the inter-bank call money market and exposure to derivatives. The aim is to detect the build-up of disproportionate exposure to any entities, exposure to various financial markets and counterparties outside the group and group-level concentration of exposure. Apart from the market leaders, others identified for this tracking in segments like mutual funds and primary dealers, include Birla Sun Life, Bajaj Allianz, Tata Mutual Fund, DSP Merill Lynch, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank, Central Bank, Corporation Bank and Sundaram Finance. The exposure of select primary dealers would also be monitored. Based on a mandated new reporting system for tracking these, the four regulators would call for presentations by the CEO's of the financial conglomerates half-yearly. The list of conglomerates would be reviewed annually. The conglomerates' list has been drawn up based on parameters like assets, deposit size, assets under management for mutual funds, apart from turnover. The regulators would call for data from them at periodic intervals, analyse it and take suitable action. These risks posed by financial conglomerates arise from the moral hazard issue — when an entity which is too big to fail is protected in the interest of financial stability. For the regulators, the concern also stems from the fact that a financial crisis in one subsidiary of a financial conglomerate, could well have a contagious effect on other firms within the group. Apart from that, it has been pointed out that supervisors have concerns relating to capital or income being transferred from the regulated entity. The new approach is consistent with that of the Basel committee, which has made out a case for a group-wise supervisory approach to capture the risks run by a banking group.

Regulators to keep a watchful eye on top cos

Some of the biggest names in Corporate India figure in the list identified by regulators in financial markets for monitoring intra-group exposures and activities.

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