The Reserve Bank of India (RBI) is considering new proposals to prevent private equity firms from holding controlling stakes in more than 1 non-banking financial company (NBFC). The proposed move aims to limit financial risks and prevent stress within a private equity firm or its associated entities from spreading across multiple lenders.
According to people familiar with the discussions, the central bank is concerned that financial difficulties at a global private equity firm or its affiliates could create a wider impact on several NBFCs in which it holds significant investments.
However, the RBI also intends to encourage smaller financial investments by subjecting them to less regulatory scrutiny.
Under existing Indian regulations, control generally refers to a 25% stake in a listed company. However, an investor may also be considered to have control with a smaller ownership share if it has the authority to appoint a majority of directors or influence the company’s management or policy decisions.
Under the proposed framework, investments of 15% or less could be classified as financial investments and attract lower scrutiny. A draft of the regulations is expected to be finalised following public consultation, with formal notification potentially taking place early next year. The RBI has not responded to requests for comment.
The proposal comes amid growing foreign investor interest in India’s banking and non-banking financial sectors, supported by strong credit demand and relatively low loan delinquencies.
According to Grant Thornton data, private equity investments in India’s financial sector reached approximately $5.4 billion last year, marking a 6% increase from 2024 and a 17% rise compared with 2023. An additional $3.6 billion was invested between January and September this year.
The RBI has previously taken steps to restrict controlling investments across multiple NBFCs. Last year, US-based Bain Capital’s acquisition of a 41.7% stake in Manappuram Finance was approved on the condition that it divest its 93% ownership in another non-bank lender, Tyger Capital, formerly known as Adani Capital.
Similar regulatory concerns have also extended beyond private equity firms. Japan’s Mizuho Financial Group holds majority stakes in 2 Indian non-bank lenders, Mizuho Capsave and Credit Saison India, and has announced plans to acquire KKR-backed financial services company Avendus.
The central bank has reportedly asked Mizuho to submit a comprehensive plan to integrate or consolidate its existing NBFC businesses in India. Mizuho Securities has not immediately responded to requests for comment.
Meanwhile, the Indian Venture and Alternate Capital Association has approached the RBI, seeking permission for different entities within the same investment group to acquire stakes exceeding 20% in multiple NBFCs.
Siddarth M Pai, Co-chair of the association’s Regulatory Affairs Committee and founder of venture capital firm 3one4 Capital, said several private equity firms and venture capital funds want to invest in fintech and financial services businesses through their different funds but face challenges due to existing ownership restrictions.
The regulatory discussions come amid continued investment activity in the sector. This week, Blackstone agreed to acquire a 16% stake in IIFL Finance for $535 million, while Singapore-based Temasek announced an investment of approximately $265 million in Godrej Capital.
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