RBI sets 10% investment limit for banks in deposit-taking NBFCs

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Reserve Bank of IndiaBanking regulator Reserve Bank of India (RBI) has restricted banks from holding more than 10 per cent stake in a deposit-taking Non-Banking Finance Company (NBFC).

The rule excludes lenders who owe equity in housing finance companies and regulate their commodity through derivatives.

 In addition to this, the apex authority has also directed the banks to maintain minimum regulatory capital prior to investing in deposit-taking NBFCs.

“The banks should not invest more than 10 percent of the unit capital of a real estate investment trust (ReIT) or an infrastructure investment trust (InvIT) subject to overall ceiling of 20 percent of its net worth,” said RBI, in amendments to the Master Direction – Reserve Bank of India (Financial Services provided by banks) Directions, 2016.

In addition to this, the central bank will also not permit the holding of more than 20 per cent stake via bank’s subsidiaries, associates or joint ventures or entities directly or indirectly governed by the bank; and mutual funds handled by Asset Management Companies (AMCs) controlled by the bank.

Prior to this, the RBI had instructed to maintain at least 10 percent capital adequacy ratio and there was no mention of Capital Conservation Buffer (CCB).

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