Reportedly on the face of it, this decision by the bank OF INDIA' target='_blank' title='rbi-Latest Updates, Photos, Videos are a click away, CLICK NOW'>rbi is aimed at putting more capital in the hands of the prime lenders and increase the credit flow in the economy. Meanwhile the necessary orders for this will be formally notified by the banking regulator soon. Furthermore the other important reason behind RBI’s decision is to reduce the risk exposure of banks due to investments in non-banking activities, including insurance.
Perhaps the association of banks with the insurance companies has been a win-win arrangement for both. Banks could sell the insurance products through their branches, thereby increasing their revenue. Apparently for the insurance companies, the banks were able to pump in funds whenever they are in dire need and the most affected banks due to this decision by bank OF INDIA' target='_blank' title='rbi-Latest Updates, Photos, Videos are a click away, CLICK NOW'>rbi will be State bank of india, ICICI bank and mahindra BANK' target='_blank' title='kotak mahindra-Latest Updates, Photos, Videos are a click away, CLICK NOW'>kotak mahindra bank, according to reports.
Moreover banks have been given till march 2021 to reach this 30% cap. This will throw up a different problem in the market, when all the banks holding equities higher than 30% in insurance companies will start offloading them. Apparently those interested in buying the stocks of the insurance companies have to be ready to pay the price the companies or banks will be expecting. Further for this, bank OF INDIA' target='_blank' title='rbi-Latest Updates, Photos, Videos are a click away, CLICK NOW'>rbi may consider phasing out the exercise to ease the situation, but some clarity is still needed on the issue.
