of intermediaries – banking companies and nonbanking finance companies, and if a dfi does not intend to become a bank with a banking licence, it should be categorised as an nbfc. the working group for harmonising the role and operations of dfis and banks ( khan working group – kwg ), was also of the view that a full banking licence be eventually granted to the dfis. based on these recommendations, the rbi had released a “ discussion paper ” ( dp ) in january 1999 soliciting wider public debate on the issue. the dp had, inter alia, envisaged a transition path for the dfis for becoming either a full - fledged nbfc or a bank. based on the feedback received on the dp, the monetary and credit policy for the year 2000 - 2001, outlined the broad approach proposed to be adopted for considering the proposals in the area of universal banking. the policy stated that the principle of “ universal banking ” was a desirable goal and any dfi, which wished to transform into a bank, should have the option to do so, provided it was able to fully satisfy the prudential norm applicable to the banks. for the purpose, such a dfi was expected to prepare a transition path for consideration of the reserve bank. thus, in due course, the recommendation of the narasimham committee to have only banks and the restructured nbfcs in the system, could be operationalised. accordingly, in april 2001, the fis were advised several operational and regulatory issues relevant in evolving their transition path to a universal bank and for formulating a road map for the purpose. 23. in the light of the rbi guidance, two leading term lending institutions viz., the erstwhile idbi and icici limited got converted into a commercial bank, each. the four term - lending institutions ( idfc ltd., ifci ltd., iibi ltd. – since wound up, tfci limited ) which were in the category of nbfcs, are now regulated as per the norms applicable to the nbfcs. however, the exim bank and the three rfis ( nabard, nhb and sidbi ) continue to be under the regulatory domain of the rbi and are regulated as per the norms applicable to the financial institutions. consolidation of the regional rural banks ( rrbs ) 24. the rrbs were established under the rrbs act, 1976

v leeladhar : consolidation in the indian financial sector special address by mr v leeladhar, deputy governor of the reserve bank of india, on the occasion of the international banking & finance conference 2008, organised by the indian merchants'chamber, mumbai, 17 april 2008. * * * dear friends, 1. it is my pleasure to be here with you this morning on the occasion of international banking & finance conference 2008 of the indian merchants ’ chamber. i am grateful to the organisers for having afforded me this valuable opportunity to address this august audience and share some of my thoughts on the subject of consolidation in the indian financial sector. the chamber has indeed come a long way since its establishment in the pre - independence days in september 1907 under the presidentship of late sir manmohandas ramji. in that era, it performed the role of the nation ’ s watchdog on the economic front under the alien rule. the chamber also has the unique distinction of having had the patronage of the father of the nation, mahatma gandhi as its honorary member since 1931. the chamber, during its functioning of hundred years, has done yeoman service to the country and society at large in promoting the cause of business community through strengthening the government - business partnership and representing the business point of view before the public policy authorities and i hope that it will continue to perform its productive role in the national policy formulation, in the days to come as well. 2. in my address today, i would like to briefly touch upon the experience in and the emerging contours of consolidation in the indian financial sector, that have taken shape over the past few decades, in the rbi - regulated entities, as a result of a calibrated policy response designed for the purpose. consolidation in the financial sector 3. consolidation of business entities, through mergers and acquisitions, is a world - wide phenomenon. the numerous mergers and acquisitions all over the world, including in india, in the real as well as in the financial services sector, appear to be driven by the objective of leveraging the synergies arising from the process of merger and acquisition. however, such structural changes, particularly in the financial system, can also potentially have public policy implications. with this brief backdrop, i would like to present an overview of consolidation in the indian financial sector, particularly amongst the banks, development financial institutions and the non - banking financial companies. the indian scenario the diversity of statutory frameworks 4. in the context of consolidation in the financial sector