India plans curbs on private-equity ownership of NBFCs: Report
The Reserve Bank of India is working on proposals that would prevent private equity firms from holding a controlling stake in more than one non-banking financial company, two people with knowledge of the plans said.
The banking regulator is concerned that financial stress at a global private equity firm or its affiliates could have a contagion effect across several NBFCs in which it has significant investments, they said.
Authorities, however, hope to encourage smaller financial investments that will be subject to lesser scrutiny, the people added, declining to be identified as the discussions are private.
Under Indian law, control is defined as a large stake—25% in the case of listed firms—though ownership can be smaller and still be considered a controlling stake if the investor has the right to appoint a majority of the directors or can control a firm’s management or policy decisions.
Holdings of 15% or less will be considered a financial investment and attract less scrutiny, according to one of the people. A draft of the rules will be finalised after public consultation and they could be formally issued early next year, the person said.
The Reserve Bank of India did not respond to Reuters requests for comment.
NBFCs find favours with foreign investors
Indian banks and NBFCs have seen a rush of foreign investor interest as demand for credit in the economy remains strong and loan delinquencies remain low.
About $5.4 billion in private equity investments flowed into India’s financial sector last year, up 6% from 2024 and 17% higher than levels for 2023, according to data from Grant Thornton. Another $3.6 billion has come in this year through to end-September.
To be sure, the RBI has at times moved to prevent controlling investments in multiple non-bank lenders.
Bain Capital’s purchase of 41.7% of Manappuram Finance last year was approved on condition that it divest its 93% ownership in another NBFC Tyger Capital, formerly Adani Capital.
The principle has also applied to non-private equity firms.
Japan’s Mizuho Financial Group has majority stakes in Indian NBFCs, Mizuho Capsave and Credit Saison India, and has said it plans to acquire KKR-backed financial services firm Avendus. RBI has asked Mizuho to submit a comprehensive plan to integrate or consolidate its existing Indian non-bank financial firms, media have reported.
Mizuho Securities did not immediately reply to a Reuters request for comment.
The Industry Pushback
The Indian Venture and Alternate Capital Association has lobbied RBI, seeking permission for different entities within a group to acquire stakes of more than 20% in multiple NBFCs.
Siddarth Pai, co-chair of the association’s regulatory affairs committee and founder of venture capital firm 3one4 Capital, said that many private equity firms and venture capital funds want to include fintech and financial services across their various funds, but face issues due to ownership thresholds.
This week saw two large private equity transactions in NBFCs. Blackstone agreed to buy 16% of IIFL Finance for $535 million, while Singapore’s Temasek will invest roughly $265 million in Godrej Capital.
