RBI relaxes group limit for NBFCs in insurance joint ventures

RBI has decided to consider a case-to-case basis relaxation of the 50% group limit norm for NBFCs (Non-Banking Finance Companies) in the equity of insurance joint venture (JV).
As per the norms of IRDA (Insurance Regulatory and Development Authority), if  an insurance company wants to enhance its capital it has to do be in compliance with the stipulations of the Insurance Act and the solvency requirements of the insurance company. As per these rules, the current restriction of a group limit of the NBFC to 50% of the equity of the insurance JV  which, according to the RBI, may act as a hindrance for the insurance company in satisfying the requirement of IRDA.
Under the current guidelines, if more than one company (irrespective of doing financial activity or not) in the same group of the NBFC intends to acquire a stake in the insurance company, the contribution by all companies in the same group have been counted for the limit of 50% equity investment in the insurance JV.
Keeping this in view, the RBI has decided that in cases where IRDA issues call for capital infusion into the insurance JV, it will consider need-based relaxation of the 50% group limit on case-to-case basis.

Month: Current Affairs - November, 2013