India mulls capping banks' ownership stakes in insurers

It suggests that the central bank is looking for uniformity in ownership rules.

The Reserve Bank of India (RBI) wants banks to limit ownership stakes in capital intensive insurance companies at a maximum 20%, less than half of what the current regulations permit, reports Reuters.

Central bank 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.

However, sources said that RBI in 2019 unofficially advised banks seeking to acquire stakes in insurers, to limit such stakes to a maximum of 30%, and more recently directed them to cap stake purchases in insurers at 20%.

The unofficial push suggests the RBI is looking for uniformity around ownership rules for lenders with exposure in the sector, following suggestions made in a working paper by an internal group released in November 2020.

Some lenders such as Kotak Mahindra Bank and State Bank of India have wholly-owned or majority owned insurance subsidiaries, and the paper had suggested that if any lender had more than a 20% stake in an insurer, they should follow a non-operative financial holding company structure which will ring fence ownership.

Here’s more from Reuters.