ICICI's VC pump-in under RBI lens

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Mumbai: India's private bank ICICI's investments in ICICI Venture, which is the country's biggest private equity fund, has come under the scanner of Reserve Bank of India. RBI feels that ICICI may be using its venture capital arm to make investments, which could have been difficult from the bank?s books. ICICI Venture is a subsidiary of ICICI Bank, reported The Economic Times. RBI has told ICICI Bank to include its investments in the VC in fulfilling the exposure limits that the bank has to stick to. Under prudential norms, the maximum exposure a bank can take to a company or a business group is proportionate to its capital. Earlier, RBI had stopped the practice of floating non-banking finance companies (NBFCs) by banks to side-step this regulation and lend to corporates. The regulator had asked the banks to treat lending by their NBFCs as part of the consolidated financial statement. RBI's argument has been that an NBFC owned by the bank should not be used to do business, which the bank can't. But in the case of I-Venture, a firm with $2 billion assets under management, RBI is taking a stricter stance. A VC, which manages third party money, is not an NBFC; it's more comparable to an asset management company of a fund house. "VCs are regulated by SEBI. However, RBI formalizes its stand with a new guideline, ICICI Venture may have to rejig some investments or the bank has to arrange more capital to justify such exposures," said a source. RBI would be making things tougher for the bank as well as the VC if it insists on a consolidated exposure limit for all investments made by the VC.

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