The Reserve Bank of India on Wednesday set prudential limits for banks’ equity investments in other companies and subsidiaries in order to prevent banks from having any significant influence over such entities even with limited investments.
The RBI said banks can’t invest more than 10 percent of their paid-up capital in a subsidiary or financial services company, while total investments made in all subsidiaries and non-subsidiary financial services companies shall not exceed 20 percent.
For companies engaged in non-financial services activities, equity investments would be capped at 10 percent of the investee company’s or bank’s paid-up capital, whichever is lower.
“It is reiterated that banks are permitted to set up subsidiaries for undertaking activities which are conducive to the spread of banking in India,” the RBI said.
A bank’s equity investments in subsidiaries and other entities that are engaged in financial services together with equity investments in entities engaged in non-financial services activities should not exceed 20 percent of the bank’s paid-up share capital and reserves, the RBI said.