Key Takeaways
- • The Reserve Bank of India is drafting proposals that would bar private equity firms from holding a controlling stake in more than one non-banking financial company (NBFC), according to two people with knowledge of the plans.
- • The RBI's concern centers on contagion risk: financial stress at a global private equity firm or its affiliates could spread across several NBFCs in which it holds significant investments.
- • Holdings of 15% or less would be classified as financial investments subject to lighter scrutiny, while draft rules are expected to be finalised after public consultation and could be issued formally early next year.
- • Private equity inflows into India's financial sector reached about $5.4 billion last year, up 6% from 2024, with a further $3.6 billion received through end-September this year, per Grant Thornton data.
- • The Indian Venture and Alternate Capital Association has lobbied the RBI for permission for group entities to hold stakes above 20% in multiple NBFCs.
Summary
The Reserve Bank of India is working on proposals that would prevent private equity firms from holding a controlling stake in more than one non-banking financial company, according to two people with knowledge of the plans, as reported by Reuters. The banking regulator is concerned that financial stress at a global private equity firm or its affiliates could have a contagion effect across several NBFCs in which it has significant investments. The people said authorities hope to encourage smaller financial investments, which would be subject to lesser scrutiny. The sources declined to be identified because the discussions are private. The RBI did not respond to Reuters requests for comment.
Under Indian law, control is defined as a large stake, 25% in the case of listed firms, though a smaller holding can still count as control if the investor can appoint a majority of directors or influence management or policy decisions. According to one of the people, holdings of 15% or less will 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 proposals come amid strong foreign interest in Indian lenders, as credit demand remains robust and loan delinquencies stay low. Private equity investment in India's financial sector totalled about $5.4 billion last year, up 6% from 2024 and 17% above 2023 levels, according to Grant Thornton data, with another $3.6 billion arriving through end-September this year. The RBI has previously acted to block 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% stake in another NBFC, Tyger Capital, formerly Adani Capital. The principle has also been applied to non-private equity investors: the RBI has asked Japan's Mizuho Financial Group, which holds majority stakes in Mizuho Capsave and Credit Saison India and plans to acquire KKR-backed Avendus, to submit a comprehensive plan to integrate or consolidate its Indian non-bank financial firms, media have reported. Mizuho Securities did not immediately respond to a Reuters request for comment.
Industry groups are pushing back. The Indian Venture and Alternate Capital Association has lobbied the RBI for permission for different entities within a group to acquire stakes above 20% in multiple NBFCs. Siddarth 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 hold fintech and financial services assets across multiple funds but face difficulties due to ownership thresholds. The report noted two large recent transactions: 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, though a smaller holding can still count as control if the investor can appoint a majority of directors or influence management or policy decisions. According to one of the people, holdings of 15% or less will 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 proposals come amid strong foreign interest in Indian lenders, as credit demand remains robust and loan delinquencies stay low. Private equity investment in India's financial sector totalled about $5.4 billion last year, up 6% from 2024 and 17% above 2023 levels, according to Grant Thornton data, with another $3.6 billion arriving through end-September this year. The RBI has previously acted to block 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% stake in another NBFC, Tyger Capital, formerly Adani Capital. The principle has also been applied to non-private equity investors: the RBI has asked Japan's Mizuho Financial Group, which holds majority stakes in Mizuho Capsave and Credit Saison India and plans to acquire KKR-backed Avendus, to submit a comprehensive plan to integrate or consolidate its Indian non-bank financial firms, media have reported. Mizuho Securities did not immediately respond to a Reuters request for comment.
Industry groups are pushing back. The Indian Venture and Alternate Capital Association has lobbied the RBI for permission for different entities within a group to acquire stakes above 20% in multiple NBFCs. Siddarth 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 hold fintech and financial services assets across multiple funds but face difficulties due to ownership thresholds. The report noted two large recent transactions: 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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