Banks Can’t Hold More Than 10% Stake In Deposit Taking NBFCs, Says RBI
RBI wont allow banks to hold more than 10% stake in a deposit taking NBFC
Banks can no longer hold more than a 10 percent stake in a deposit taking non-banking finance company, with the exception of lenders owning equity in housing finance companies, according to a Reserve Bank of India circular issued on Monday.
As part of the revised guidelines, banks will also not be allowed to invest more than 10 percent of the unit capital of a real estate investment trust (REIT) or an infrastructure investment trust (InvIT). This would be “subject to an overall ceiling of 20 percent of its net worth permitted for direct investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to Alternative Investment Funds,” the banking regulator said.
Banks will not be allowed to hold more than 10 percent of the paid up capital of a company, not being its subsidiary and engaged in non-financial services or 10 percent of the bank’s paid up capital and reserves, whichever is lower.
The RBI will also not allow holding more than 20 percent stake through the bank’s subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and mutual funds managed by Asset Management Companies (AMCs) controlled by the bank.
Besides, no bank can offer broking services for the commodity derivatives segment of SEBI recognised stock exchanges except through a separate subsidiary set up for the purpose or one of its existing subsidiaries, RBI said.
Possible Impact?
It isn’t immediately clear why the RBI chose to revise its guidelines in this matter but a consultant speaking on conditions of anonymity said that this change may have some impact on the pending merger between IDFC Bank Ltd and the Shriram Group.
In July, IDFC Bank and the Shriram Group announced a merger, which would see Shriram City Union Finance merging with the bank and Shriram Transport Finance Corporation Ltd continue as a subsidiary of holding company IDFC Ltd, outside the bank. Shriram Transport Finance is a deposit taking NBFC.
IDFC Bank declined to comment on a query by BloombergQuint.
This proposed structure came under debate as the RBI in the past had said that all businesses permitted to be conducted by a bank must be taken over by the newly licensed universal banks, small finance banks and payments banks, from their holding companies.
While addressing the media after their merger announcement, the management of IDFC Bank and the Shriram Group had both said that the RBI had provided some dispensation in one or two cases in the past, which gave them confidence in going ahead with the merger. However, they did not clarify where such a dispensation was provided.
Kotak Mahindra Bank Ltd holds 51 percent stake in Kotak Mahindra Prime, a car finance business under the Kotak Mahindra Group. Similarly, Axis Finance is a wholly owned subsidiary of Axis Bank, which provides wholesale and retail lending products. However, both these NBFCs do not feature on the list of deposit taking NBFCs which the RBI updates on its website.