To give more operational freedom and flexibility in decision
making, the Reserve Bank of India (RBI), on September 16, 2015,
issued a circular stating that the banks need not approach RBI for
prior approval for equity investments.
As per previous circulars of RBI, banks were not allowed to
participate in the equity of financial services ventures including
stock exchanges, depositories, etc., without obtaining the prior
specific approval of RBI, notwithstanding the fact that such
investments may be within the ceiling prescribed under Section
19(2) of the Banking Regulation Act.
Such investments are already subject to prudential limits as per
Master Circular on 'Para Banking Activities', dated July 1,
i. Equity investments by a bank in a subsidiary company, or a
financial services company, including financial institutions, stock
and other exchanges, depositories, etc., which is not a subsidiary
should not exceed 10 per cent of the bank's paid-up share
capital and reserves and
ii. The total investments made in all subsidiaries and other
entities that are engaged in financial services activities together
with equity investments in entities engaged in non- financial
services activities should not exceed 20 per cent of the bank's
paid-up share capital and reserves.
Note: The cap of 20 per cent does not apply, nor prior approval
of RBI required, if investments in financial services companies are
held under 'Held for Trading' category, and are not held
beyond 90 days as envisaged in the Master Circular on
'Prudential Norms for Classification, Valuation and Operation
of Investment Portfolio by Banks'.
As per this Circular, banks which have CRAR of 10 per cent or
more and have also made net profit as of March 31 of the previous
year need not approach RBI for prior approval for equity
investments in cases where after such investment, the holding of
the bank remains less than 10 per cent of the investee
company's paid up capital, and the holding of the bank, along
with its subsidiaries or joint ventures or entities continues to
remain less than 20 per cent of the investee company's paid up
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