In short: The Reserve Bank of India (RBI) is reportedly working on rules that would stop a private equity firm from holding a controlling stake in more than one non-banking financial company (NBFC). Holdings of 15% or less would be treated as financial investments and face lighter checks. The rules are not yet in force; a draft is expected to go for public feedback first.
What has been reported?
According to Reuters, citing two people aware of the discussions, the RBI is considering a restriction on private equity (PE) firms controlling more than one NBFC. The sources did not wish to be named because the talks are private, and the RBI did not respond to Reuters' requests for comment. Nothing has been officially notified, so the details below may change.
The reported worry is contagion. If a global PE firm or its affiliates ran into financial stress, the trouble could spread across several NBFCs in which it holds significant investments.
What counts as "control"?
As reported, control under Indian law means a large shareholding: 25% in the case of a listed company. A smaller stake can still amount to control if the investor can:
- appoint a majority of the company's directors; or
- influence its management or policy decisions.
So control is not only about the percentage held. Rights attached to the investment matter too.
The proposed lighter route for smaller investments
The RBI also wants to encourage smaller investments. One of the sources said holdings of 15% or less would be treated as financial investments and attract fewer regulatory checks.
| Type of holding | Reported treatment |
|---|---|
| Controlling stake in more than one NBFC by a PE firm | Proposed to be barred |
| Holding of 15% or less | Treated as a financial investment; lighter scrutiny |
Has the RBI done this before?
The reports point to earlier cases where similar conditions were applied:
- Last year, the RBI approved US firm Bain Capital's purchase of a 41.7% stake in Manappuram Finance, on the condition that it sell its 93% holding in another NBFC, Tyger Capital (formerly Adani Capital).
- The approach has also applied to investors outside private equity. Japan's Mizuho Financial Group holds majority stakes in two NBFCs, Mizuho Capsave and Credit Saison India, and has said it plans to acquire Avendus, a financial services firm backed by KKR. The RBI has reportedly asked Mizuho for a plan to integrate or consolidate its Indian non-bank businesses.
Who is affected?
- PE firms and funds that hold, or want to build, controlling positions in several NBFCs.
- NBFCs that rely on PE capital.
- Foreign investors, who have shown growing interest in Indian banks and NBFCs. Grant Thornton data cited in the reports put PE investment in India's financial sector at about $5.4 billion last year, up 6% from 2024 and 17% from 2023, with a further $3.6 billion from January to end-September this year.
The Indian Venture and Alternate Capital Association has asked the RBI to let different entities within the same group hold more than 20% in multiple NBFCs. Its regulatory affairs co-chair, Siddarth M Pai, said many PE and venture capital funds want to invest in fintech and financial services through different funds, but ownership limits make this difficult.
Two large deals were also reported this week: Blackstone agreed to buy 16% of IIFL Finance for $535 million, and Temasek will invest around $265 million in Godrej Capital.
What happens next, and what should you do?
A draft will be finalised after public consultation, and the rules could be formally issued early next year, according to one source. Ordinary customers and depositors need not take any action. Investors, fund managers and NBFC promoters may wish to track the RBI's website for the draft and consider submitting comments during the consultation, ideally with professional advice on their holding structures.
Frequently asked questions
Is the ban already in force?
No. The reports say the RBI is only considering or working on the proposal. A draft is to be finalised after public consultation, and the rules could be issued early next year.
Does this stop private equity from investing in NBFCs altogether?
No. As reported, the aim is to prevent controlling stakes in more than one NBFC. The RBI also wants to encourage smaller financial investments, with holdings of 15% or less facing lighter scrutiny.
When is a stake treated as controlling?
For listed companies, a 25% stake is treated as control. A smaller stake can also count if the investor can appoint most directors or influence management or policy decisions.
Sources
- TOI Business: RBI plans to ban private equity firms from holding controlling stakes in multiple NBFCs
- BusinessLine: RBI weighs banning private equity firms from controlling multiple non-bank lenders