What changed
RBI clarified that when more than one company in an NBFC's group takes a stake in an insurance joint venture, the total contribution from all group entities must be aggregated and counted against the 50% equity cap. The circular also defined 'companies in the same group' using specific accounting standards and SEBI regulations.
What it means for you
NBFCs can no longer use multiple group entities to bypass the 50% limit in an insurance JV. This tightens regulatory oversight and ensures that group exposure is transparent. Lenders must review their group structures and any existing or planned insurance investments to ensure compliance.
What you must do
- Review all existing and planned insurance JV investments to ensure total group stake does not exceed 50%.
- Map all group entities as per the defined relationships (subsidiary, JV, associate, promoter, related party, common brand, 20%+ equity) and aggregate their stakes.
- Update internal compliance policies to reflect the group-level cap for insurance JV investments.
- Consult legal and compliance teams to align with the clarified definition of 'companies in the same group'.
Who it affects
All NBFCs registered with RBI, NBFC groups with multiple entities, NBFCs planning or holding insurance JV stakes
Does this circular change the 50% cap for a single NBFC in an insurance JV?
No, the 50% cap remains unchanged. The circular clarifies that if multiple companies in the same group invest, their combined stake must be counted toward that limit.
What is the definition of 'companies in the same group' under this circular?
It includes relationships such as subsidiary-parent (AS 21), joint venture (AS 27), associate (AS 23), promoter-promotee (SEBI takeover code), related party (AS 18), common brand name, and equity investment of 20% or more.
Does this apply to non-financial group companies as well?
Yes, the circular explicitly states that the aggregation applies to all companies in the same group, irrespective of whether they are engaged in financial activity or not.