An in-depth analysis on

ONE HUNDRED SMALL STEPS

Assignment on Banking Regulations& Management

SACHIN SEBASTIAN 18B124

Introduction
One hundred small steps is a report made by a few of the stalwarts in Financial sector next
generation of reforms for Indian Financial sector. The report majorly focuses on financial
inclusion and strengthening the institutions. There are three main reasons for these three
reforms. To include more Indians in the growth process, to foster growth itself and to improve
financial stability, flexibility and resilience. All the reforms and innovative ideas usually stick
to only the upper strata of the society. Th lower side of it never gets to enjoy any of it. Most
of the benefits are unknown to that section of people. So it is imperative that these section
of people should be receiving a levelling playing field. Also the report stresses on the fact that
more foreign investments are needed to strengthen the economy of the country.

In the next few pages we will be discussing in short about the proposals put forward by the
committee and its impacts on society. Although the report was published in 2006, most of the
proposals still remain relevant to the core and some of them had been implemented
successfully.
PROPOSAL ANALYSIS

Proposal 1
The first proposal discusses about the measures that should be taken to keep the inflation of
the country on check. Inflation is an economic term that denotes an environment of generally
rising prices of goods and services within an economy. The purchasing power of the consumer
decreases as general prices rise. Inflation rate is the measure of inflation over time. The
proposal suggests that we should alter the interest rate (repo and reverse repo) accordingly
to keep the inflation in a desired range. This might lead to a capital inflow, but it will happen
one way or the other. The proposal aims at using the capital inflow by foreign investors to
create liquidity in Indian market. This liquidity will in turn attract more domestic investors into
the market. This can also help in funding governments debts and in freeing the balance sheets
of domestic financial institutions.
Proposal 2
Once a clear monetary framework is in place, open up the bond markets for foreign investors.
But there is a trade-off to it that more foreign inflow of money will lead to the appreciation
of real exchange rate of Indian rupee which can affect the exports badly. In order to overcome
this company suggest that we should also increase the outflows by investing funds from
provident funds and insurance companies. This can make this funds more stable by less
exposure to the volatility of Indian market. The committee also suggest that it is high time t
maintain fiscal discipline as high fiscal deficit has a huge impact on macroeconomic
development and the financial system.

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Proposal 3
This proposal talks about the idea and need of introducing more small banks into the Indian
economy. The intent is to localize the loan processes and make sure that an individual gets
the help easily. This will also provide a chance for small players to enter into the banking
system and gradually grow into a large bank. There is a taboo related to small banks that they
will be unprofitable due to the large fixed costs, and the promoters are not trustworthy
enough. This assumptions occur due to the ppor history of small banks which failed mainly
due to poor governance, excessive political support and unwillingness of regulator to
interfere. The committee is aiming at an entirely different framework which will offer much
greater care and regulatory oversight. In the light of the recent fiascos happened in large
banks, committee points out that it is not at all about the size and the technological
improvements can reduce the costs to large extent. Also the failure of smaller banks will not
create an impact as much as of larger bank. All these factors are put forward by the committee
to ascertain the fact that it is time to experiment on small sized banks.
Proposal 4
This proposal suggests to liberalize the banking correspondent regulation in a way that local
agents also will be bale to extent financial services. Cooperative banks is the kind of
institutions that comes into constant contact with lower strata of people. But excess exposure
to political influence makes the operations of these banks complex and difficult. Committee
suggests for a prompt corrective action so that unviable cooperatives are closed and also the
debtors are not given disproportionate power. Committee also believes that priority sector
helps in financial inclusion but its essential to confirm that the help reaches the right hands.
Proposal 5
This proposal discusses about the priority sector and put forward the recommendation that
priority sector lending certificates should be given to all entities that lend to eligible
communities in priority sector. The tradable certificates issued against priority sector loans of
banks so as to enable banks to achieve their specified target and sub-targets for priority sector
lending through purchase of these instruments in the event of a shortfall are called as Priority
Sector Lending Certificates (PSLCs) . This also motivates the surplus banks to lend more to
these sectors. The committee also believes that the interest rate ceilings lead to banks not
giving loans to priority sectors because it is less profitable and to imposing hidden charges
on the loans given. So the committee believes that liberalizing the interest rates along with
the increase in safeguards to prevent exploitation will lead to more lending in the priority
sector.
Proposal 6
The proposal suggests to liberalize the interest rates ensuring the credits reaches the poor.
This should be done keeping into mid three things :full transparency on the interest rates,
periodic disclosure of maximum and average interest rates, clarity on allocation of PSLC’s.
Liberalizing interest rates can also help to keep the poor away from the hands of money
lenders.

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Proposal 7
This proposal suggests to sell small underperforming public sector banks to another bank or
a strategic investor to gain experience with the process and gauge outcomes. This is
impractical in case of larger PSB’s because there is an issue of political acceptability when
international banks try to swallow our large banks. Another option is a public offering but
this needs an investor confidence in the corporate governance of the company in order to
fetch good valuation.

Proposal 8
This proposal suggests to create a stronger board for public sector banks. The main reason
for this is the increasing NPA’s and news related to malpractices. Committee also suggests to
give more power to external shareholders which can include a private sector strategic
investor which can in turn devolve the power to appoint and compensate top executives to
the board. This can also help in addressing the risks. The committee tries to underline the fact
that ultimately the bank in a different entity compared to the government and a separation
of ownership and professional management is needed. It should also be noted that in case of
a major fraud, the central bank does not have the power to remove the board of a public
sector bank, only government has. So separating the ownership with management is a
necessity.
Proposal 9
This is in continuation of the 8th proposal. Through this proposal , committee suggests to
delink the banks from the additional oversight of the central vigilance commission and
parliament. Since the public sector bank boards are already controlled by the government,
there is no need for a secondary oversight. Committee also suggests in creating a bank holding
company where government will have a stake. All the point lead to a common goal that
governments should be having a reduced oversight over PSU banks. Committee also suggests
that the shareholding of government should be brought under 50 % through divestment to
other public entities or provident funds which means that even though government will be
having the decision power it cannot be considered as the owner. This proposal also promotes
the merger of the banks.
Proposal 10
This one also is a continuation of proposal 9 which requests for more liberal view towards
bank mergers and takeovers including the domestic subsidiaries of foreign banks. This will
also help to decrease the pressure on the domestic banks. One more suggestion they are
putting forward is delicensing the branching process. Committee suggests that there can be
restrictions put by RBI on this process but it should be on an emergency basis. That is if a bank
does branching process in a suspicious way that it tries to kill other bank business or any other
malicious activity , RBI should interfere. Committee also understands that allowing foreign

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banks more freedom would be a challenge to the domestic banks but that is something
domestic banks should be ready for.

Proposal 11
This proposal is a continuation of proposal 10 and suggests opening of multiple branches and
ATM’s anywhere. Since allowing foreign banks to do the same, domestic banks will be at a
disadvantage because they wont be able to cop up with the infrastructure and funds foreign
banks have for expansion. Because of that , the committee suggests that a foreign banks
should be allowed this facility only after 2 years of entering the Indian market. This will help
the domestic banks to get a head start . However foreign banks will be allowed to acquire
branches through takeovers.
Proposal 12
This proposal suggests to allow holding company structures with a parent holding company
owning regulated [Link] companies must also be well diversified if has a bank
as well. These kind of holding companies can help make Universal banking possible.
Committees also adds that some legislative and tax changes are required ot make this changes
viable.
Proposal 13
This proposal suggests that all regulations related to trading of securities should be brought
under securities and exchange board of India (SEBI).But in some areas like Bond markets , RBI
have an interest since directly affects the economy. So in areas similar to this where multiple
regulators share common interest, they have to co-operate even though the power will be
with SEBI.
Proposal 14
Committee suggest to introduce new products into the Indian market like Exchange traded
interest rate and exchange rate derivatives.A standardized interest rate derivative contract
traded on a recognized stock exchange to buy any interest bearing instrument or an index of
such instruments or interest rates or sell a notional security at a specified future date, at a
price determined at the time of the contract is known as Interest Rate Futures.
Proposal 15
Committee suggest to avoid banning markets in case of some suspicion of manipulation
because it can create confusion and uncertainty among investors. Actions taken should be
against the ones who are suspected of manipulation, and should not be against the whole
market.
Proposal 16
This proposal suggests to create the concept of one consolidated membership of a new
exchange of qualified investors. The current system, requires to obtain membership for each

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product traded. Consolidated membership should give the right to trade all the products in
the exchange on a unified trading screen and also should provide a consolidated margin.
Proposal 17
Committee suggests the setting up of professional markets and exchanges that has a higher
order size that are restricted to only high net worth investors. This markets will be trading
only sophisticated products and only investors with high level of knowledge of the markets
will be allowed to trade.
Proposal 18
This proposal aims at creating a more innovated process by which products are getting
approved faster focussing on the concerns like systemic risk, fraud, contract enforcement and
transparency. The threshold of allowing products on professionally traded exchange or over
the counter markets should be lower, so that experimentation can take place.
Proposal 19
This proposal suggests to promote the participation foreign investors In domestic market. The
emphasize should also be on providing access of suitable equity linked products to all sects of
population as part of inclusion agenda. It also suggest to increase the participation of
domestic investors by reusing the restrictions implemented by regulators on the choice of
investments an institutional investor can make.
Proposal 20
This proposal suggests to re-write the financial reforms with clear objectives and framework.
But committee also points out that the supreme court is always against excessive delegation
and it has made it clear through various verdicts. So whenever a statutory body is given un-
canalized power ,supreme court tend to interfere. So the role of the regulator should be to
provide ancillary function of providing the details.
Proposal 21
This proposal suggests an year by year evaluation process on the regulators. This evaluation
will be done after giving out a certain set of rules for the regulator to perform on. The current
state is that regulator is too afraid to let the banks violate even the smallest rule even if it
ultimately leads to a positive outcome. If the regulators are being provided their targets every
year and evaluated based on that, they have to submit an an annual report to a standing
committee on finance and the interactions should be made public.
Proposal 22
This proposal suggest that the actions taken by regulator should be allowed to be appealed
at the Financial Tribunal of India. This is to ensure that there are enough checks on the
regulator and the power is not misused in any way. The committee suggest that in order to
keep the quality of the employees high, they should be offered high remunerations as well as
responsibilities. There is a threat of conflict of interest due to the prior or subsequent

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employment of these recruits. Therefore proper non-disclosure agreement should be on
place.

Proposal 23
The proposal suggests that all deposit taking institutions should come under the purview of
RBI. Situation where responsibility is shard like cooperative societies, should gradually cease.
RBI should also be playing a key role in the joint supervision of conglomerates and systemically
important NBFCs. Committee also suggests a periodic review of the financial reports of the
companies on a periodical basis. This can help in increasing the confidence of the public.
Proposal 24
The ministry of corporate affairs & SEBI should be reviewing the accounts of unlisted and
listed companies respectively. Constant communication between the regulating bodies have
become a necessity due to the overlapping responsibilities of the bodies. So the committee
suggests that a strong tie between the regulators is necessary in an environment where
holding companies are getting stronger. A combined supervision of thee companies is
essential to keep the balance of the economy intact.
Proposal 25
A financial Sector Oversight Agency should be set up by the statute which will focus on the
macro prudential and supervisory processes. FSOA will be responsible for conducting periodic
assessments on the macro economic risks, its concentration and exposure to the economy.
FSOA will have the chiefs of all the regulatory bodies as members and financial secretary as
the permanent invitee. There should be a prescribed minimum frequency of meetings
.Committee also points out that its aim is not to create a ‘Super Regulator’, but to create a
coordinating force and fill the gaps the current regulators are not able to fill.
Proposal 26
This proposal suggests that a Working group for financial sector regulations should be set up
with the financial minister as Chairman. The main aim of this group is to act as the guidance
force for the financial reforms. In a world of growing financial portfolios, customer require a
go-to person for all the complaints. A financial ombudsman can fulfilled these requirements
and also can help in increasing financial literacy and counselling. Ombudsman can also act as
a neutral forum to settle debt related cases out of court.

Proposal 27
To serve as interface between household and industry, the committee suggests to set up an
office of financial ombudsman which should incorporate all such offices of the existing
regulators. The committee also noted the presence of so many capital depleted finanical
entities in the system. Regulatory forbearance is the process of allowing capital depleted

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entities to still operate. The committee suggest that this practice should come to an end when
so many new entities are rapidly coming into the system.
Proposal 28
This proposal suggests to expand and strengthen the capacity of the Deposit Insurance and
Credit Guarantee Corporation (DICGC) for a more prompt corrective action. The other
activities include monitoring risk, resolve a failing bank and making deposit insurance
premium more risk based. The whole aim of this proposal is to create a more robust and
stable regulatory framework which higher growth innovation and more financial inclusion.

Proposal 29
This proposal suggests to creating a method of developing a unique Id for citizens with
biometric identification. Our credit information system lacks the availability of a unique
identifier which can differentiate people. In a country like India where so many people are
outside the formal financial system , a normal credit system wont be able to assess the whole
population. So it is needed to tap information like telephone bills or other utility bills to gather
information about the credit capability of the citizens. Linking this to a unique Id can help
make this process easier.
Proposal 30
This proposal suggests a system where customer data is collected from various sources but is
available to the financial institutions on ‘a need to know and authorization to use’ by the
credit bureau. The current system shares the information primarily among institutional credit
providers on the basis of reciprocity. Committee also suggest to make the land rights clear
and transparent. Although this will be expensive, it is probably one of the most needed
changes in the country today.
Proposal 31
This proposal suggests to fasten the ongoing process of land registration and tilting. In order
to achieve this, the Centre has to lead the way and introduce the best practices to be followed
. Committee also suggests for a special law court to clear the backlog of land disputes. Also
the problem of widespread prohibition of land leasing need to be faced. This is making it
difficult for people to difficult as they are unable to lease their lands and have to leave a family
member behind to look after the land. Lifting these restrictions can help this people and also
the informal lease owners to legalize the same and thereby claim credits and other benefits.
Proposal 32
This proposal suggests to reexamine the restrictions on tenancy so that it can be formalized
in contracts which can serve as the basis of borrowing. Since the current registration system
in India is fragmented and not fully computerized, a well organized system is required where
creditors can establish they have a secured claim to an asset and lenders or purchasers be
made aware of prior claims. By extending the SRFAESI act to the tenancy problem, we would
be able to develop a structural framework.

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Proposal 33
This proposal suggests that the SRFAESI act that is currently conferred to banks and financial
institutions should be extended to all institutional lenders. It is important that many ARC s are
there so that one ARC is not having excessive power. This is because ARC’s have additional
powers such as step in rights and right to sell or lease a business. This also leads to a
suggestion that foreign investment on ARC’s should be allocated because the kind of risk
capital and experience foreign investors bring in is huge.
Proposal 34
This proposal discusses about encouraging the entry of more Asset restructuring companies
,even the ones with foreign backing. If India needs a flourishing debt market, corporate public
debt which is unsecured should have a value when the company is distressed. This means that
a well-functioning bankruptcy code should be in place instead of the current system that only
helps the creditors to get the firm’s assts into ground.

Proposal 35
This proposal tries to dissect the bankruptcy codes in the Indian context. Most of the
bankruptcy are from the recommendations of Irani committee. The recommendations
mainly focus on initiatives for protecting the interests of stakeholders and investors, including
small investors, through legal basis for sound corporate governance practices. An underlying
theme of the recommendations is that an increasing stress is sought to be laid on
shareholders' democracy. While in theory, shareholders' democracy is indeed a great concept
and needs to be encouraged.

LEVELLING THE PLAYING FIELD

This chapter tells about providing a level playing field for all the financial institutions
irrespective of their size or market capitalization. If a level playing field is there, it will lead to
healthy competition which will ultimately be beneficial to the customer in the form better
pricing. But in India, due to many reasons, some institutions are favored over the others. As
an example it is mentioned that money market mutual funds have a tax advantage over
normal bank deposits. The tax on interest is more than the tax on dividends we receive from
the mutual funds. The committee suggest to equal these to rates so that the equality will be
there. Also , the Government owned financial institutions enjoy many luxuries and relaxations
compared to the private and foreign institutions. The committee suggests that the institutions
should be ownership neutral. That is to make these institutions either private or bring down
the governmental share in this institution.
The committee also want to dissect the argument that foreign institutions can hamper the
growth of domestic institutions. Indian institutions have already come out of that growth
stage that they are capable enough to compete with the giants. The entry of foreign
institutions can bring improved services and prices for the consumer. There is a pre conceived

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notion that the entry of foreign players is not good for an economy which is at a low leev lof
financial economy. But Indian economy is much more matured than that. There are two ways
of eliminating the inequalities : either remove the burdens altogether or make the burdens
common to everyone. Committee believes that it is better to remove the burdens than
inflicting it on everyone. Committee has also raised certain points of concern. They are
[Link] role of Indian /banking sector is small compared to the whole GDP of India
2. Even the largest bank in India is very small compared to the entire banking sector of the
country. SBI is only worlds 80th largest .
[Link] countries are ranked by share of the top 3 banks in country, India would be at 112 th rank
[Link] is one of the 9 countries where banks are predominantly owned by the state itself.
[Link] share of private & foreign banks in banking sector is pretty low compared to the public
banks.
6. Intermediation costs in India remain at very large values compared to other countries with
an average spread of 5 %
[Link] use of technology to reduce the transaction costs have not been implemented in its
perfect way. India has 19 ATMs per 1 million people compared to 51 in China or 193 in Brazil.
We will now analyze the proposals that were put forward and whether these proposals were
implemented as of 2018. If implemented, we will analyze how effective these reforms were.

Proposal 1 : Reforming the public banks

Proposed:
Committee tells that government ownership puts certain limitations on the operations of the
public sector banks. So it suggests for a privatization on these banks or brining down the
government share on these banks.

Governance structure is what hinders the performance of PSBs despite having a number of
strengths including their historic ability to attract talent, their vast branch network, their
strong name recognition, and their association with safety, especially in rural areas.
Problems faced by PSBs
1. Pay and sensitivity to performance are less hence making it hard to attract new
talents.
2. Promotions based on seniority and not on the basis of work parameters.

3. The most important corporate decision, appointment and dismissal of the bank’s
top management, is not taken by the board, but by the central government.

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 4. Unlike private companies, the bank’s board is not considered an adequate trustee
for the interests of its owner.

5. Public sector bank unions can use their proximity to political power to have an
added influence over the management of some public-sector banks, it creates an
imbalance that can be detrimental to the bank as a whole.

6. PSBs limit of their ability to issue shares to the private sector without altering
majority government ownership, capital is increasingly constraining their growth.

Major Steps

 Appointments of board members should not be because of eminence in other fields.

Board members must be chosen based on their capacity to guide the bank’s business
to maximize value creation for all its stakeholders and balance stakeholder interests
in areas of conflict.
 Non-government shareholders should be allowed to appoint board directors following
the same regulations that apply to private companies—minority shareholders in
public sector banks should not be treated any differently. Five directors are appointed
by the government and the RBI, three consist of management, and two are employee
appointees. But since the government appoints management, eight directors are
effectively government appointees. The balance would become more equitable if the
board appointed management.
 The bank board, which is closer to the real needs of the bank, should make all decisions
including selecting the Chairman and CEO of the bank and all its important officers, as
well as terminating them.
 Delink PSBs from government’s majority stakes by reducing it below 50% to help
privatization of banks and hence giving them better controls and rights to exercise
their competitive edge.

Actions taken :

Chart Title
160.00 149.06
140.00 120.07
112.81
120.00
100.00
80.00 63.94 60.94
60.00 48.76
40.00
20.00
0.00
Brazil Malaysia Thailand Turkey China India

PRIVATE CREDIT BY DEPOSIT MONEY BANKS to GDP (%) (2016)

India have increased the private credit from 36 % to 48 %.

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Banks Board Bureau
It was established on 1 April 2016 from the first year her job. Immediately upon
commencement, the Bureau gave priority to ensuring that new appointments for full-time
managers in public sector banks (PSBs) are completed before the current corresponding
accordingly, the first half of the past fiscal year has focused mainly on making
recommendations on appointing full time managers in PSBs. Later, during the period from
October 2016 to March 2017, the Bureau sent recommendations to the Government on:

1. Roles, Responsibilities, Remuneration and Non-Commercial Terms of Service

[Link] in addition to the remuneration of non-executive board members
[Link] to ensure that the level of pitch with private banks is
[Link] in order to attract high quality characters.

Earlier during the past year, the Ministry of Financial Services, Ministry funding has been
requested, the Government of India ensure that the group is eligible candidates should be
available to the Bureau for all necessary interactions clarifications a-priori to ensure that the
recommendations of the office are immediately submitted to the Appointments Committee
of the Cabinet and delayed time among the recommendations and declaration of
appointments is minimal. Accordingly, the Office conducted the loading process and held
interactions with the executive PSBs managers on 30 March 2017 recommended five
candidates for the post of MD & CEO in PSBs for vacant positions from 2017 to 18.

Proposal [Link] consolidation, do not force

Proposed :

1. Until the political will is found to amend the relevant acts, takeovers will be ruled out.
Till such time though, takeovers of PSBs by other PSBs or public financial institutions
should not be discouraged.
2. Once PSBs undertake the governance and compensation reforms as suggested by the
committee, PSBs may acquire a smaller well-functioning private sector bank to
upgrade its functioning.
3. Foreign banks that create a separately incorporated domestic subsidiary in India
should have the same rights that private sector Indian banks have. Also, foreign banks
incorporated in India should be given accordance based on reciprocity i.e. Indian
banks should receive similar kind of accordance by foreign governments.
4. Till excessive concentration or stability is not a problem takeover of large banks is
permitted.

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Actions Taken :

SBI merger 2017:

1) The Government of India shall provide support and contribute to the recovery of debt and
capital to the Subsidiary Body for Implementation and its associated banks. The presentation
will become easy.
2) Below the profitability of the engineering body for implementation to determine the stages
of the maturation at any time before completion. Net Profit Group of Rs. 12,225 crores in
fiscal year 2016 to Rs. Was 241 crore in fiscal year 2017 and the losses were returned to the
affiliated banks
3) To recover loans that turned into liquidity and reduce NPA for SBI and future banks in the
future, it was possible to spend with SBI with affiliated banks.
4) To rebuild SBI and its partner banks in the face of financial crises so you can meet their
obligations.
5) With the merger, SBI became larger than before. Now it has a larger asset base and ranks
45th among the best banks in the world.
6) Bank management will become easier earlier as all branches are managed by a separate
department although the contract was the same and used to make the entire process
cumbersome.
7) The cost of managing a large number of branches will reduce which increases the
profitability of the bank

Proposal 3 : Reduce barriers to competition

Proposed :
1. Remove branch and ATM licenses immediately for all banks other than foreign banks to
allow them to own branches through acquisition of existing Indian banks, allowing foreign
banks to create deeper pockets, expertise and skills for local banks to launch a strategic
activity in the newly liberated environment.
2. Banking can be promoted in disadvantaged areas by setting a standard - for all x branches
that are opened in urban branches, y branches should be opened in semi-urban or rural areas,
allowing banks to choose the total number of branches.

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[Link] should be given a free will to open or close their branches so as to have a significant
impact on any area. If branches are forcibly maintained, banks apply for the minimum support
they need to meet an objective level of services.
4. Capital requirements at entry level (minimum 300 crores) hinder the entry of small banks,
which in turn affect the overall financial structure. The Committee therefore suggests that
the criterion should not be limited to overlapping on the basis of the capital adequacy process.
The concerns must also be carefully liberalized by demanding higher governance standards,
higher capital and reserve ratios, more transparent and automated risk measurement
processes linked to a vigilant supervisory system, and a rigorous fast corrective action system
5. Free entry should be accompanied by a more stringent application of regulations to
mitigate associated risks.
6. Some banking concessions related to payment or verification of writing facilities should be
reduced, with bank commitments reduced such as sector priority lending and other exception
types such as the legal liquidity ratio (SLR) and the cash reserve ratio (CRR). Once the
procedural improvements contemplated in priority sectoral lending are implemented, all
foreign banks must be required to meet the same obligations as local banks.
7. The Government's preferences for certain PSBs should be discontinued in terms of
privileges, as is the case for unsecured obligations such as forced subsidies to public issues by
other public sector bodies.

Actions Taken :

10 small finance banks were given license towards providing financial services to rural
regions. Also eleven firms were given license to start payment banks which can provide
basic savings, and deposit, payment and remittance services to people who doesn’t have
access to formal financial system. Also commercial banks are allowed to convert themselves
into payment banks with 100 % SLR margins. All the plans are being brought in as part of
developing a better licensing process which will give even the small firms a better chance at
competition against the larger players.

Proposal 4 : Moving to holding company structures

Proposed:
As per provisions of The Companies Act 2013, a company controlled by another company is
called a subsidiary company and the controlling company is called a holding
[Link] suggests to regulate and monitor the holding companies using FSOA. It
also recommends that the holding companies should present its accounts on consolidated
basis. Currently holding company pays taxes as a single entity and the subsidiaries in their
individual capacity. For the effectiveness of the holding company structure, a consolidation is
needed. As per provisions of The Companies Act 2013, a holding company subsidiary
company relationship can be proved when:

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  The holding company is able to control the composition of the Board of Directors of
the subsidiary company
 Holding company holds more than 50% of paid up share capital of the subsidiary
company.

Action taken :

Government sources said the Indian Reserve Bank opposed the government's plan to set up
a holding and investment bank (BHIC), which would raise capital for all public sector banks
and thus increase capital for project financing institutions. A holding company was proposed
in the 2015-16 budget to improve banks' ability to raise capital and reduce the government's
burden from capitalization of state-owned banks. As any holding company is expected to
benefit from its own equity base, it is expected to help reduce the government burden of
injecting funds into the PSBs. Capital requirements from PSBs are expected to rise due to an
increase in its troubled assets and lower profitability.

Discriminating against service providers based on national origin

The committee is discussing about providing foreign investment opportunities to domestic
investors and vice versa. Domestic fund managers are not supposed to provide portfolios to
foreign investors unless and until they have a separate investment vehicle outside country for
that. These create additional transaction costs and make AMC’s less viable.

CONCLUSION
By analyzing the report and proposals we arrive at a conclusion that all the proposals
suggested were aimed at strengthening the economy of India. However most of the proposals
they put forward were too bold for our economy to accept. Some of the reforms were vetoed
by the so called higher powers in Indian economy because providing a levelling playfield will
harm the bigger players because they thrive on the regulations. If these proposals are
implemented in its true sense, it could help India grow into a higher economic power. But
selfless initiatives are needed to implement these.

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