What changed
RBI clarified that the 5% cross-holding limit applies only to proprietary holdings of a bank and its group entities in another bank. Fiduciary holdings by group asset management companies (AMCs) through portfolio management services or mutual funds are excluded from this limit. However, if total group holdings including fiduciary reach 5% or more, the investee bank must seek RBI acknowledgement, and the AMC cannot exercise voting rights or have board representation.
What it means for you
Banks can now invest in other banks through group AMCs without breaching the 5% proprietary cap, but must ensure AMCs do not vote or hold board seats. This provides flexibility for group-level strategic investments while maintaining regulatory oversight. Lenders need to track both proprietary and fiduciary holdings to trigger RBI acknowledgement when total hits 5%.
What you must do
- Monitor aggregate proprietary holdings of your bank and group entities in any investee bank to ensure they stay within 5% of paid-up capital.
- Track total group holdings including fiduciary holdings by AMCs; if they reach 5% or more, approach RBI for acknowledgement.
- Ensure group AMCs do not exercise voting rights on their holdings in the investee bank and obtain an undertaking from them.
- Confirm that group AMCs have no board representation in the investee bank.
- Maintain records of AMC undertakings for inspection purposes.
Who it affects
Scheduled commercial banks in the private sector, Bank group entities including asset management companies, Investee banks receiving equity investments
What is the 5% limit for cross-holding of capital?
The aggregate proprietary holdings of a bank and its group entities in another bank's paid-up capital must not exceed 5%. Fiduciary holdings by group AMCs are excluded from this limit.
Do we need RBI approval if our group AMC holds shares in another bank?
No prior approval is needed for fiduciary holdings, but if total group holdings including fiduciary reach 5% or more of the investee bank's paid-up capital, the investee bank must approach RBI for acknowledgement.
Can our group AMC vote on its holdings in another bank?
No, the AMC cannot exercise voting rights on its holdings in the investee bank. It must provide an undertaking to this effect, which the investee bank should keep for inspection.