What changed
RBI now requires bank boards to explicitly record the intent of holding investments in subsidiaries, associates, or joint ventures at the time of acquisition. Previously, exclusion from consolidation was permitted if the investment was held for near-term disposal (within 12 months), but the board's intent was not formally mandated.
What it means for you
Banks must ensure board minutes capture the holding purpose for each such investment. If intent is not recorded, the investment will be consolidated, impacting financial reporting and capital adequacy calculations. This tightens governance around consolidation decisions.
What you must do
- Update board approval processes to include explicit recording of holding intent for all new investments in subsidiaries, associates, and joint ventures.
- Review existing investments to ensure board intent was recorded; if not, prepare for consolidation in financial statements.
- Train investment and finance teams on the new requirement to avoid inadvertent non-compliance.
- Coordinate with auditors to align consolidation practices with RBI's directive.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Bank boards and senior management, Finance and accounting departments, Auditors and compliance teams
What happens if the board does not record intent at the time of investment?
The investment must be consolidated in the bank's financial statements, as per RBI's directive. This applies even if the investment was intended for temporary holding.
Does this apply to existing investments made before this circular?
The circular focuses on investments made after its date. For existing investments, banks should check if board intent was recorded; if not, consolidation may be required.