Banks will need nod before investing in non-financial companies: RBI

Banks’ investments in non-financial companies will now come under the Reserve Bank of India’s (RBI’s) scanner. They will have to take prior approval from RBI before floating or investing in non-financial companies.

In the second quarter review of the monetary policy, RBI has proposed prudential limits to regulate banks’ investments in companies engaged in businesses other than financial services. Moreover, it has suggested that banks will be required to review their investments in such companies and be compliant with the guidelines according to the roadmap to be laid down.

RBI noted that banks might indirectly undertake activities not permitted to them or activities that were not conducive to the spread of banking in India or otherwise useful or necessary in public interest.

Bankers the guidelines might not impact them in a big way. “The only interest of banks is either floating an IT, BPO arm or taking a strategic stake in these units,” said a senior executive of a large public sector bank.

Some banks that would be impacted by these guidelines are the country’s largest lender - the State Bank of India and the largest private sector bank – ICICI Bank. SBI has a business process outsourcing (BPO) joint venture with TCS called C-Edge in which SBI holds 49 per cent.

Similarly, ICICI Bank holds stakes in several businesses. For instance, it holds 19.46 per cent in BPO firm Firstsource. Another public sector bank Indian Overseas Bank has expressed its interest in getting into IT.