India's central bank plans 20% limit on banks' ownership of insurers – Reuters

The Reserve Bank of India intends to lower the maximum limit on bank shareholding in capital-intensive insurance companies to 20% from 50%, Reuters reported March 2, citing three sources with knowledge of the discussions.

The unnamed sources said the central bank issued the mandate recently after advising banks in 2019 to limit stakes at 30%.

The potential rule amendment follows suggestions published in an internal group's working paper in November 2020. The recommendations remain under consideration, but it is not clear when they will be implemented, according to the news platform.

On a selective basis, current regulations allow bank stakes in insurance companies to be higher than 50% but must eventually be brought down within a certain period, according to the report.

The sources said the central bank will likely stall any application from banks to boost shareholding in insurers, with one of them adding that banks have been told unofficially that the regulator is uncomfortable with lenders boosting their shareholding in insurance companies as it sees the sector as a "money guzzler."

Federal Bank Ltd. is yet to receive approval from the RBI for its application about a year ago to increase its stake in Ageas Federal Life Insurance Co. Ltd. The central bank had also rejected Axis Bank Ltd.'s application to hold 17% of Max Life Insurance Co. Ltd., and the deal was only green-lit after being restructured.

The central bank did not respond to Reuters' request for comment. Federal Bank and Axis Bank also did not respond to requests for comment regarding their applications, according to the news platform.