RBI plans norms for govt banks to enter pvt equity

The Reserve Bank of India is formulating guidelines that would allow government-owned banks get into the private equity (PE) business.

“The guidelines are almost ready,” said a person familiar with development who did not wish to be named. “The announcement is expected by the end of the current financial year,” he added. RBI did not respond to an email query.

The regulator had earlier objected to State Bank of India’s plans to get into the PE business. In February last year, SBI announced plans to buy a 19.75 per cent stake in Sage Capital Funds Management, a Mumbai based PE firm, for about Rs 2 crore. The deal has still not materialised as RBI’s formal approval is awaited. SBI was also contemplating investments in Unitech Realty Investors and South Asian Real Estate that had plans to float real estate funds.

RBI Deputy Governor Shyamala Gopinath, who is also the central bank’s nominee on the board of SBI, had then raised questions regarding SBI’s plans for the PE business.

At present, banks are allowed to take direct equity exposure up to 20 per cent of their net worth. The indirect exposure to capital market too has a similar cap. Therefore, banks can invest up to 40 per cent of net worth in the capital market.

Many Indian public sector banks are now looking at private equity arena as part of their attempt to become conglomerates with presence across segments. Another public sector bank, IDBI Bank, had sought RBI’s permission last year for venturing into private equity. It is targeting a corpus of Rs 1,000 crore to Rs 1,500 crore for its first fund.

Among the private players, ICICI Bank and Axis Bank already have private equity arms, while others such as Yes Bank are planning to put in place two-three funds this year. Public sector lender Canara Bank has been aggressive in the venture capital space and has invested in over 80 companies.