The finance ministry and the Department of Industrial Policy & Promotion (DIPP) have come around to accept the view of the Reserve Bank of India (RBI) on intermediate holding companies.
According to government sources, the two wings of government also share the central bank?s view that any foreign investment in such holding companies could be subject to legal review, as setting them up could violate foreign investment rules pertaining to various sectors.
The crux of the ministry?s and DIPP?s view is that intermediate holding companies are unregulated entities and this structure has been used for regulatory violations.
The two wings of the government are likely to support a holding company structure for sectors with stiff foreign investment restrictions like telecom, banking, media and aviation, in which firms do not own intermediate subsidiaries. This would mean that the parent companies will have to hold investments in subsidiaries directly and the foreign holding in them will be calculated on a pro-rata basis.
RBI had also said allowing foreign investment in a holding company could give rise to complications on account of legal restrictions on foreign holdings. The issue of holding companies and intermediate investment arms came into prominence after ICICI Bank asked for the government?s permission to set up a holding arm for its insurance business, ICICI Holdings.
