Indian Bank Gets ARC Shareholding Exemption Till March 2026

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  • Last Updated on 16 May, 2025

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Section 19(2) Banking Regulation Act exemption

Notification No. S.O. 2138(E); Dated: 14.05.2025

1. Regulatory Backdrop—What Section 19(2) Says

Section 19(2) of the Banking Regulation Act, 1949 bars a bank from holding shares in any non-subsidiary company exceeding 30 % of (a) that company’s paid-up capital or (b) the bank’s own paid-up capital + reserves, whichever is lower. The cap is meant to prevent over-concentration of risk and keep banks focused on core lending.

2. Statutory Power to Relax the Cap

Under Section 53(1), the Central Government may, on the RBI’s advice, “declare by notification that any provision of this Act shall not apply … to any banking company for such period and subject to … conditions as may be specified.” The latest notification invokes this carve-out.

3. Why Indian Bank Needed the Waiver

Indian Bank already owns >30 % in ASREC (India) Ltd., an asset-reconstruction company (ARC) that buys and works out stressed assets. Without the waiver the bank would have had to dilute its stake or breach the Act. RBI recommended the exemption to let the public-sector lender retain strategic control and support the bad-asset resolution ecosystem.

4. How This Differs from Earlier Relief

A similar exemption had been granted in January 2024 but was due to lapse on 31 March 2025. The fresh notification extends the window by one more year, signalling policy continuity while giving the bank time to plan any future exit or restructuring.

5. Practical Implications for Indian Bank

  1. No Forced Divestment – The bank can keep its majority influence in ASREC through FY 2025-26.
  2. Capital-Adequacy Impact – Shares in financial subsidiaries/ARCs attract a 250 % risk weight; the exemption does not alter Basel treatment, so capital planning must factor that in.
  3. Governance & Reporting – Indian Bank must disclose the exemption and stake details in its annual report and comply with RBI’s master directions on investments in ARCs.
  4. Deadline Awareness – Unless re-extended, the stake must be trimmed on or before 1 April 2026 or a fresh exemption sought.

6. Broader Sector Takeaways

  • Case-by-case relief – The government hasn’t raised the cap industry-wide; each bank still needs a specific S. 53 notification.
  • Policy signal – Authorities remain supportive of bank-led clean-up of NPAs through ARCs.
  • Compliance alert for peers – Other lenders with outsized stakes in ARCs or fintech associates should track their own sunset dates and engage early with RBI.
Click Here To Read The Full Notification

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied