The Reserve Bank of India may relax the 50 per cent group limit on non-banking finance companies investing in insurance joint ventures.
The RBI has said it will consider need-based relaxation of the 50 per cent limit in cases where the Insurance Regulatory and Development Authority (IRDA) calls for capital infusion into the insurance joint venture. The relaxation, if permitted, will be subject to the NBFC complying with all regulatory conditions.
Very often the IRDA requires an insurance company to expand its capital considering the stipulations of the Insurance Act and the solvency requirements. The group cap on NBFCs at 50 per cent of the equity of the insurance joint venture company could act as a constraint for the insurance venture meeting the IRDA requirement. Now, in case more than one company (irrespective of whether it does financial activity or not) in the same group of the NBFC wants to take a stake in an insurance joint venture, the contribution by all companies in the group should not exceed 50 per cent of the equity investment in the insurance company.