Reserve Bank of India rules allow banks to hold up to 50 per cent stakes in insurers and on a selective basis equity holdings can be higher but must eventually be brought down within a certain period.
The central bank wants banks to limit ownership stakes in capital intensive insurance companies at a maximum 20 per cent, less than half of what the current regulations permit, three sources with knowledge of the discussions told Reuters. Reserve Bank of India (RBI) rules allow banks to hold up to 50% stakes in insurers and on a selective basis equity holdings can be higher but must eventually be brought down within a certain period. The sources, who asked not to be named as the discussions are private, however, said the central bank in 2019 unofficially advised banks seeking to acquire stakes in insurers, to limit such stakes to a maximum of 30 per cent, and more recently directed them to cap stake purchases in insurers at 20 per cent. Many foreign insurers are expected to explore the opportunity as insurance penetration continues to be low in India. With fears that banks' bad loans could double amid the COVID-19 pandemic, the RBI does not want banks to lock up money in capital intensive businesses, the sources said. The RBI may have reservations about banks having more than 20 per cent stakes in any non-core companies, one of the sources said. Federal Bank, which sought permission from the RBI to increase its stake in Ageas Federal Life insurance after its board approved the deal about a year ago, has still not received RBI approval, one of the sources said.