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RBI caps banks’ investments in other firms, subsidiaries

The Reserve Bank of India set prudential limits for banks' equity investments in other companies and subsidiaries in order to prevent banks from having any significant influence over such entities even with limited investments.
As per the draft guidelines issued by the central bank, banks cannot invest more than 10 per cent of their paid-up capital in a subsidiary or financial services company, while total investments made in all subsidiaries and non-subsidiary financial services companies should not exceed 20 per cent. Wherever investments do not conform to the above mentioned policy parameters, banks may ensure that their investments are brought down to 10 per cent of the paid-up share capital of the investee company or give up control or exercising significant influence as the case may be.
The cap of 20 per cent would not apply for investments classified under ‘Held for Trading’ category and are not held beyond 90 days
Equity holding in excess of 10 per cent of investee company's paid-up capital would be permissible without the RBI's prior approval if the additional acquisition is through restructuring/CDR. The equity investment in excess of 10 per cent of investee company's paid-up capital in such cases would be exempted from the 20 per cent limit, the RBI said.
“Banks should also carry out a review of their subsidiaries, associates, joint ventures by applying the test of ownership and control parameters within a period of three months,” the RBI said

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