The country’s primary bank, RBI, requires banks to restrict ownership stakes in capital-concentrated insurance companies at a maximum of 20%, less than half of the prevailing regulations sanction, 3 sources with information of the negotiations informed Reuters.
Reserve Bank of India (RBI) rules enable banks to possess up to 50% stakes in insurers, and on a particular basis, equity holdings can be greater. Still, they must ultimately be brought down within a specific duration.
As the discussions were private, the sources requested not to be named. However, they said the RBI in 2019 unofficially encouraged banks to acquire stakes in insurers to hold such stakes to a maximum of 30% and lately instructed them to cap stake acquisitions in insurers at 20%.
The central bank wants banks to concentrate on their principal business areas instead of securing away capital in non-core divisions. They did not answer a request querying comment.
The informal push implies the RBI is looking for steadiness around ownership practices for lenders with exposure in the sector, after the recommendations made in a working daily by an in-house group published in November.
The working paper’s recommendations are under deliberation by the RBI, and it is not obvious when the central bank will act on or implement the proposals. In light of this, the RBI is likely to delay banks’ requests to boost or obtain new insurers’ stakes.
The sources said that following concerns that banks’ bad loans could multiply due to the COVID-19 pandemic, the RBI does not want banks to secure funds in capital-concentrated businesses. The RBI also has doubts about banks holding more than 20% stakes in any non-core firms.