VCs no more a priorty venture, says RBI
RBI issued a circular stating fresh investments made by banks in VCs on or after July 1 2005 will not be eligible for classification under priority sector lending.
By TNN |
Investments in venture capital (VC) fund will no longer be considered as priority sector lending for banks. On Friday, RBI issued a circular stating fresh investments made by banks in VCs on or after July 1 2005 will not be eligible for classification under priority sector lending.
Exposure to VCs before July 1, however, would be eligible to be classified as priority sector lending for FY06.
Market sources add that the priority sector definition may further change in the coming months. Bankers said that RBI has indicated that by 2006 investments made in Rural Electrification Corporation and by 2007 investments in Nabard Bonds will not be eligible for priority sector lending. RBI is slowly phasing out indirect investments made by banks to meet their priority sector targets, banking sources said.
Over the last couple of years, an increasing number of banks—mostly public sector—have taken the initiative to invest in venture capital funds. Sources said that a bank’s single investment in a venture capital fund could vary from Rs 25 to 200 crore and the total investment by the banking sector is around Rs 2000 crore.
“The directive could act as a disincentive for banks to invest in venture capital fund, but it is not a major setback,” a senior PSU bank official said.
Bankers are required to lend 40% of their total advances in segments laid down by RBI to achieve the priority sector target.
RBI had allowed banks in 1999 to invest in venture capital funds and companies registered with Sebi.
Exposure to VCs before July 1, however, would be eligible to be classified as priority sector lending for FY06.
Market sources add that the priority sector definition may further change in the coming months. Bankers said that RBI has indicated that by 2006 investments made in Rural Electrification Corporation and by 2007 investments in Nabard Bonds will not be eligible for priority sector lending. RBI is slowly phasing out indirect investments made by banks to meet their priority sector targets, banking sources said.
Over the last couple of years, an increasing number of banks—mostly public sector—have taken the initiative to invest in venture capital funds. Sources said that a bank’s single investment in a venture capital fund could vary from Rs 25 to 200 crore and the total investment by the banking sector is around Rs 2000 crore.
“The directive could act as a disincentive for banks to invest in venture capital fund, but it is not a major setback,” a senior PSU bank official said.
Bankers are required to lend 40% of their total advances in segments laid down by RBI to achieve the priority sector target.
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RBI had allowed banks in 1999 to invest in venture capital funds and companies registered with Sebi.
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