Key Takeaways
- • India's central bank is working on proposals that would bar private equity firms from holding a controlling stake in more than one non-bank lender, according to two people with knowledge of the plans cited by Reuters.
- • The RBI's concern is contagion: financial stress at a global private equity firm or its affiliates could spread across several non-bank lenders in which it holds significant investments.
- • Under Indian law, control is generally a 25% stake in listed firms, though smaller holdings can qualify if the investor can appoint a majority of directors or direct management or policy decisions; holdings of 15% or less would be treated as financial investments with lighter scrutiny.
- • A draft is expected to be finalised after public consultation and could be formally issued early next year, per one source. The RBI did not respond to Reuters' request for comment.
- • The move would affect a fast-growing segment: about $5.4 billion of private equity investment flowed into India's financial sector last year, and another $3.6 billion came in through end-September this year, according to Grant Thornton.
Summary
India's central bank is developing proposals that would prevent private equity firms from holding a controlling stake in more than one non-bank lender, according to two people with knowledge of the plans, as reported by Reuters. The Reserve Bank of India is concerned that financial stress at a global private equity firm or its affiliates could have a contagion effect across several non-bank lenders in which it has significant investments.
Under Indian law, control is defined as a large stake, 25% in the case of listed firms. However, a smaller stake can still constitute control if the investor has the right to appoint a majority of directors or can direct management or policy decisions. According to one of the sources, holdings of 15% or less would be considered a financial investment and attract less scrutiny. A draft of the rules will be finalised after public consultation and could be formally issued early next year. The RBI did not respond to Reuters' request for comment.
The proposal comes as Indian banks and non-bank lenders attract strong foreign investor interest, supported by robust credit demand and low loan delinquencies. Grant Thornton data cited by Reuters show about $5.4 billion of private equity investment flowed into India's financial sector last year, up 6% from 2024 and 17% above 2023 levels, with another $3.6 billion coming in through end-September this year.
The RBI has previously intervened to prevent controlling investments in multiple non-bank lenders. Bain Capital's purchase of 41.7% of Manappuram Finance last year was approved on condition that it divest its 93% ownership in another non-bank lender, Tyger Capital, formerly Adani Capital. The principle has also applied to non-private equity investors: Japan's Mizuho Financial Group holds majority stakes in Mizuho Capsave and Credit Saison India and has said it plans to acquire KKR-backed Avendus. The central bank has reportedly asked Mizuho to submit a plan to integrate or consolidate its Indian non-bank financial firms, media reports said. Mizuho Securities did not immediately respond to Reuters' request for comment.
Industry lobbying is also underway. The Indian Venture and Alternate Capital Association has asked the RBI for permission for different entities within a group to acquire stakes above 20% in multiple non-banking financial companies. Siddarth M Pai, co-chair of the association's regulatory affairs committee and founder of 3one4 Capital, said many private equity and venture capital funds want to invest in fintech and financial services across their portfolios but face constraints from ownership thresholds.
The proposal arrives as two large private equity deals in non-bank lenders were announced this week. Blackstone agreed to buy 16% of IIFL Finance for $535 million, and Singapore's Temasek will invest roughly $265 million in Godrej Capital.
Under Indian law, control is defined as a large stake, 25% in the case of listed firms. However, a smaller stake can still constitute control if the investor has the right to appoint a majority of directors or can direct management or policy decisions. According to one of the sources, holdings of 15% or less would be considered a financial investment and attract less scrutiny. A draft of the rules will be finalised after public consultation and could be formally issued early next year. The RBI did not respond to Reuters' request for comment.
The proposal comes as Indian banks and non-bank lenders attract strong foreign investor interest, supported by robust credit demand and low loan delinquencies. Grant Thornton data cited by Reuters show about $5.4 billion of private equity investment flowed into India's financial sector last year, up 6% from 2024 and 17% above 2023 levels, with another $3.6 billion coming in through end-September this year.
The RBI has previously intervened to prevent controlling investments in multiple non-bank lenders. Bain Capital's purchase of 41.7% of Manappuram Finance last year was approved on condition that it divest its 93% ownership in another non-bank lender, Tyger Capital, formerly Adani Capital. The principle has also applied to non-private equity investors: Japan's Mizuho Financial Group holds majority stakes in Mizuho Capsave and Credit Saison India and has said it plans to acquire KKR-backed Avendus. The central bank has reportedly asked Mizuho to submit a plan to integrate or consolidate its Indian non-bank financial firms, media reports said. Mizuho Securities did not immediately respond to Reuters' request for comment.
Industry lobbying is also underway. The Indian Venture and Alternate Capital Association has asked the RBI for permission for different entities within a group to acquire stakes above 20% in multiple non-banking financial companies. Siddarth M Pai, co-chair of the association's regulatory affairs committee and founder of 3one4 Capital, said many private equity and venture capital funds want to invest in fintech and financial services across their portfolios but face constraints from ownership thresholds.
The proposal arrives as two large private equity deals in non-bank lenders were announced this week. Blackstone agreed to buy 16% of IIFL Finance for $535 million, and Singapore's Temasek will invest roughly $265 million in Godrej Capital.
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