Under the drafted framework, shareholdings of 15% or less will face fewer regulatory checks as standard financial investments, whereas stakes of 25% or smaller holdings with board influence count as control. The move follows substantial institutional activity, with private equity funds pouring $3.6 billion into the sector from January to September of this year alone. To mitigate these ownership limits, the Indian Venture and Alternate Capital Association has lobbied the regulator to allow different entities within the same group to maintain stakes above 20% across multiple shadow lenders.
Key points
The central bank intends to classify equity stakes of 15% or less as financial investment…: The central bank intends to classify equity stakes of 15% or less as financial investments subject to fewer regulatory hurdles.
Regulators view 25% ownership or smaller holdings with board appointment powers as contro…: Regulators view 25% ownership or smaller holdings with board appointment powers as controlling stakes that could transmit financial contagion.
The Indian Venture and Alternate Capital Association has requested allowances for affilia…: The Indian Venture and Alternate Capital Association has requested allowances for affiliated entities to hold over 20% across multiple non-bank lenders.
Sources checked by our analysis pipeline: 1
NEW DELHI: The Reserve Bank of India (
RBI) is considering banning private equity firms from holding controlling stakes in more than one non-banking financial company (NBFC).
The proposed rules will also distinguish between controlling stakes and smaller financial investments, allowing holdings of 15% or less to attract fewer regulatory checks, sources told Reuters.
The move follows the central bank's concerns that financial stress at a global private equity firm or its affiliates could spread across several NBFCs in which it has significant investments.
However, the RBI also wants to encourage smaller financial investments that would be subject to less scrutiny, the people said, requesting anonymity as the discussions are private.
What is controlling stake
Currently, a 25% stake in a listed company is considered a controlling stake. However, an investor can also be considered to have control with a smaller shareholding if it can appoint most of the company's directors or influence its management or policy decisions.
Investments of 15% or less will be treated as financial investments and face fewer regulatory checks, one of the people said.
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