The Reserve Bank of India is reportedly considering tighter limits on private equity firms holding controlling stakes in more than one non-banking financial company, a move that could change how financial groups expand across India’s credit market. The proposal, reported by the Times of India citing Reuters, is based on anonymous sources familiar with private discussions and has not been confirmed through an RBI notification or published draft supplied here.
The reported framework would distinguish between control and smaller financial investments. Holdings of 15% or less could face fewer regulatory checks, while a stake above that threshold may receive closer scrutiny depending on whether the investor can appoint most directors or influence management and policy decisions. The arrangement would address a central regulatory question: when does an investor’s presence across several NBFCs become a potential source of contagion rather than ordinary portfolio diversification?
The RBI’s reported concern is that financial stress at a global private equity firm or one of its affiliates could spread across multiple NBFCs in which it has significant investments. NBFCs are important channels of credit for households, small businesses and other borrowers, but they do not operate under exactly the same institutional structure as banks. A common controlling investor across several lenders can therefore create a more complicated supervisory picture, particularly when businesses share ownership links, funding relationships or strategic decision-making.
The proposal would not amount to a blanket restriction on all private equity participation. According to the report, the central bank wants to encourage smaller financial investments by subjecting holdings of 15% or less to fewer regulatory checks. The distinction is important because ownership percentage alone does not always determine control. An investor with a smaller stake may still influence a company by appointing directors or shaping management and policy decisions.
The reported approach reflects a regulatory preference for examining effective control rather than relying only on a numerical threshold. The article states that a 25% stake in a listed company is currently considered a controlling stake, but that control can also arise at a lower shareholding level when an investor has decisive influence over the board or the company’s operations. The proposed rules would therefore have consequences not only for large acquisitions, but also for the governance arrangements attached to investments.
The issue has already appeared in RBI decisions involving financial-sector investors. Last year, the central bank approved US private equity firm Bain Capital’s acquisition of a 41.7% stake in Manappuram Finance on the condition that Bain sell its 93% holding in another NBFC, Tyger Capital, formerly known as Adani Capital. The decision illustrated how the regulator can treat ownership across multiple non-bank lenders as a matter requiring consolidation or separation, rather than as unrelated investments.
The same ownership question extends beyond private equity. Japan’s Mizuho Financial Group holds majority stakes in Mizuho Capsave and Credit Saison India and has announced plans to acquire KKR-backed financial services firm Avendus. The report says the RBI has asked Mizuho to submit a detailed plan to integrate or consolidate its existing non-bank financial businesses in India. Mizuho Securities had not immediately responded to Reuters’ request for comment, according to the supplied report.
The pressure for clearer rules comes as foreign capital moves deeper into India’s financial sector. Private equity investment in the country’s financial sector reached approximately $5.4 billion last year, up 6% from 2024 and 17% from 2023, according to Grant Thornton data cited in the report. A further $3.6 billion flowed into the sector between January and the end of September this year. The figures indicate the scale of capital entering the sector, although they do not by themselves establish how much of that investment involved controlling stakes in NBFCs.
Industry participants are seeking more flexibility. The Indian Venture and Alternate Capital Association has approached the RBI to allow different entities within the same group to hold stakes of more than 20% in multiple NBFCs. Siddarth M Pai, co-chair of the association’s regulatory affairs committee and founder of venture capital firm 3one4 Capital, said many private equity and venture capital firms wanted to invest in fintech and financial-services businesses through different funds, but that ownership limits were making this difficult.
That request highlights the tension at the centre of the proposed framework. Investment funds are commonly structured through multiple vehicles, and investors may argue that separate funds should not automatically be treated as a single controlling entity. The regulator’s concern, as described in the report, is that formal separation may not remove the practical risks created when the same wider financial group has influence over more than one lender. The final rules will determine how the RBI treats such relationships.
Recent transactions show why the question has become commercially significant. Blackstone agreed to buy a 16% stake in IIFL Finance for $535 million, while Singapore’s Temasek agreed to invest approximately $265 million in Godrej Capital. The reported 15% threshold could make the distinction between a strategic investment and a control-seeking transaction especially important for investors structuring deals in India’s NBFC market. The supplied material does not establish how either transaction would be treated under any future framework.
The RBI is expected, according to the report, to finalise a draft after seeking public feedback, with formal rules potentially issued early next year. Until a draft, notification or official RBI statement is available, the precise definition of control, the treatment of different funds within one investment group and the transition requirements for existing holdings remain unestablished in the supplied material.
What the reported proposal confirms is the direction of the regulatory debate: India’s financial-sector oversight is increasingly focused on concentration of influence across institutions, not only on the capital entering each individual NBFC. What remains uncertain is the final wording and legal scope of the framework. The next material milestone will be the RBI’s publication of a consultation draft or formal statement, which would allow investors, NBFCs and borrowers to assess the rules against specific ownership structures.
