RBI to relax investment limit of NBFCs in insurers

As per present norms, restriction of a group limit of the NBFC should not exceed 50% of the equity of the insurance JV company

The Reserve Bank of India (RBI) said on Thursday it would consider relaxation of the 50 per cent group limit for non-banking financial companies (NBFCs) investing in insurance companies, on a case-to-case basis.

According to the present norms, in case more than one company (irrespective of doing financial activity or not) in the same group of the NBFC wishes to acquire stake in the insurance company, the contribution by all companies in the same group should not exceed 50 per cent equity investment in the insurance joint venture (JV) company.

RBI said that in the operation of of the insurance company, very often, Irda required an insurance company to expand its capital, taking into account the stipulations of the Insurance Act and the solvency requirements of the insurance company.

“The restriction of a group limit of the NBFC to 50 per cent of the equity of the insurance JV company prescribed in the above mentioned circular may act as a constraint for the insurance company in meeting the requirement of Irda,” said RBI in the notification.

Insurance company executives said that as currently companies do not fall in this category, this mandate might give relief to them in the future. “There could be a new partner entering and exiting the insurance space. The relaxation will be beneficial to the future players,” said an insurance official.

On a review, RBI said it has been decided that in cases where Irda issues calls for capital infusion into the insurance JV company, the bank may, on a case-to-case basis, consider need-based relaxation of the 50 per cent group limit specified in the earlier circular. The relaxation, if permitted, will be subject to compliance by the NBFC with all regulatory conditions specified in earlier circulars.

NBFCs who want to apply for such relaxation have to apply to the regional office of RBI under whose jurisdiction its registered office is situated, along with supporting documents.