India's central bank to spur private equity investment

The Reserve Bank of India will likely permit government-owned banks to invest in direct private equity in February.

India’s central bank, the Reserve Bank of India, is putting together guidelines that would allow government-owned banks to invest directly in private equity.

The guidelines will probably be ready at the end of February, C V R Rajendran, the deputy general manager of India’s Corporation Bank, said in an interview. However, it should be expected that government-owned banks will invest very gradually in direct private equity as they have to build skills and track records, which will take time, he said.

Currently, government-owned banks in the country, which are already active investors in private equity funds, cannot invest in private equity firms, direct private equity, or raise such funds. They are only allowed to do so through a subsidiary, such as an asset management company. 

Over the last year, India’s capital markets have plummeted by more than 50 percent due to the economic crisis, which has made capital increasingly difficult to obtain. In response, the government is relaxing regulations on private equity investments to make capital more available to Indian businesses.  

The Indian government may also permit single-brand foreign retailers to dilute stakes in their Indian operations to foreign private equity firms, the Economic Times reported recently.

Established in 1906, Corporation Bank is a public sector bank that has about 850 branches across the country. To date, it has invested in roughly 20 private equity funds investing in India.