Sunday, January 15, 2012

RBI LIMITS INVESTMENTS BY BANKS

In a bid to regulate the banks' investments in non-financial services companies which do not require prior approval from it, the Reserve Bank of India has said equity investment by a bank in such companies would be subject to a limit of 10% of the investee company's paid up share capital or 10% of the paid up share capital and reserves, whichever is less. Moreover for the purpose of this limit, equity investments held under 'Held for Trading' category would also be reckoned. Further, equity investments in any non-financial services company held by a bank; entities which are bank's subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and mutual funds managed by AMCs controlled by the bank should in the aggregate not exceed 20% of the investee company's paid up share capital. A bank's request for making investments in excess of
10% of such investee company's paid up share capital, but not exceeding 30%, would be considered by RBI if the investee company is engaged in non financial activities. Equity holding by a bank in excess of 10% of non-financial services investee company's paid up capital would be permissible without RBI's prior approval (subject to the statutory limit of 30%) if the additional acquisition is through restructuring/CDR or acquired by bank to protect its interest on loans/investments made in a company. The equity investment in excess of 10% of investee company's paid up share capital in such cases would be exempted from the 20% limit referred to above.

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