Banks may have to cut their stakes in insurance companies as the Reserve Bank of India (RBI) has expressed concerns about volatility in these two financial sectors. In a bid to shield banks from risks arising out of their non-banking businesses and boost liquidity in the slowing economy, the central bank has directed banks to cap their stakes in insurers at 30 per cent, Mint reported.
The RBI, in a meeting last week, informed the bankers that it will soon notify rules to cap their holdings in an insurance company to 30 per cent, the daily quoted sources as saying. The stake will be capped at 50 per cent for non-banking financial companies such as Housing Development Finance Corporation (HDFC), the report said. However, the RBI has not issued any official communication regarding this.
As per the report, the rule would be implemented in a phased manner.
The proposed RBI rule will have severe impact on banks such as State Bank of India, ICICI Bank and Kotak Mahindra Bank, as they derive a huge chunk of income from their insurance units. The move will also impact insurance companies as majority of them have banks as promoters. Insurer majors like SBI Life Insurance, ICICI Prudential Life Insurance, Universal Sompo General Insurance and Canara HSBC OBC Life Insurance have banks as promoters.
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State Bank of India holds 57.6 per cent stake in in SBI Life Insurance Co; ICICI Bank holds 52.87 per cent shares in ICICI Prudential Life Insurance Co. Ltd; and Kotak Mahindra Bank owns 77 per cent in Kotak Mahindra Life Insurance Co. Ltd.
In a separate development, the Insurance Regulatory and Development Authority of India (Irdai), last week, proposed an increase in foreign direct investments (FDI) in insurance from 49 per cent to 74 per cent, which will ensure that insurance companies do not face capital constrain.
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Earlier this week, markets regulator Securities and Exchange Board of India (Sebi) has implemented a "stewardship code", mandatorily for all the categories of the institutional investors including mutual funds (MFs) and Alternative Investment Funds (AIFs), with regard to their investment in listed equities. Stewardship code is a principles-based framework that assists institutional investors in fulfilling their responsibilities to help them protect and enhance the value of their clients and beneficiaries.
Edited by Chitranjan Kumar