(a) whether banks are allowed investment in non-financial entities;
(b) if so, the details thereof;
(c) whether Reserve Bank of India (RBI) has proposed a limit on the
equity investment of a bank in entities not involved in financial services;
and
(d) if so, the details thereof and the reasons therefor?
The Minister of State in the Ministry of Finance (Shri Namo Narain Meena)
(a) & (b): Yes, Sir. Banks` investments in companies which are not
subsidiaries are governed by the limits prescribed under Section 19(2) of
Banking Regulation Act, 1949 and there is no requirement, at present, for
obtaining prior approval of Reserve Bank of India (RBi) for such investments
except in cases where the investee companies are financial services companies.
(c) & (d): On 06.07.2011, RBI has issued draft guidelines proposing a
limit on equity investments in subsidiaries and other companies because it
may be possible that banks could through their holdings in other entities,
exercise control on such companies or have significant influence over such
companies and thus, engage indirectly in activities not permitted to banks
in terms of Section 6(1) of the Banking Regulation Act, 1949. This would be
against the spirit of the provisions of the Act and is not considered
appropriate from prudential perspective as well.