Private Equity

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RBI tells NBFCs to oust PE-VC observers

Economic Times  

Private Equity and Venture Capital funds can no longer enjoy 'power without responsibility' in non-banking finance companies (NBFCs) where they own equity stakes. These institutional investors often place 'observers' in NBFCs where they acquire stakes instead of nominating formal directors on the boards of the investee companies, primarily to avoid civil or even criminal liabilities that such board members could be exposed to in the event of frauds, fund diversion, and serious governance lapses.The message from RBI comes in the wake of a slew of measures to tighten the prudential norms for NBFCs, diminish the scope of regulatory arbitrage, and strengthen governance structures.