Regulatory Digest: The Financial Services Bulletin

The Financial Services Bulletin

This is the November edition of Nishith Desai Associates’ monthly financial services newsletter in collaboration with U.S.-India Business Council.

INTRODUCTION

In this edition, we spotlight key regulatory developments across the finance and banking sector, with a particular focus on the listed security markets. With the Indian listed market booming and seeing unprecedented amounts of public listings, it is clear that it is more than just a trend. Just in 2025, the Indian listed market has seen more than 300 listings, which have already raised more than USD 16 billion, with another USD 4-5 billion plus of offerings in the pipelines. Within this backdrop, it is reassuring to see that the Indian regulators are taking steps to secure and boost this wave even further. Adding to this positive momentum, the Indian stock market also saw the return of foreign portfolio investment (“FPI”) after 3 months with net inflows of nearly USD 1.6 billion in October 2025.¹ Further, FPIs have also invested nearly USD 1.5 billion in October 2025 in financial services stocks alone.²

Nishith Desai Associates (“NDA”), in collaboration with U.S.-India Business Council (“USIBC”), is pleased to launch the November edition of our monthly financial services roundup titled “The Financial Services Bulletin”. Through this publication, we aim to cull out key developments in the financial services industry which happened over the last month that, in our view, “summarizes this period”. Our roundup has been meticulously curated into two parts: Part I provides updates from the broader business world, while Part II covers legal and regulatory developments in the financial services industry, ensuring that key developments relevant to our stakeholders are concisely discussed.

PART I – BUSINESS AND NEWS UPDATES

TRADES, TRENDS, LEGISLATIONS AND LITIGATION

1. India’s retail inflation slows down.³

India’s annual retail inflation plunged to 0.25 % in October, down from 1.44 % in September, according to government data. This was driven predominantly by steep deflation in food and beverage prices and favorable base-effects, and the recent tax cuts, as mentioned in our earlier edition. This marks the fourth consecutive month when inflation has remained below Reserve Bank of India’s (“RBI”) medium target of 4%. 

2. India recently sent its first India-made multi-chip module (“MCM”) to U.S.⁴ 

In a major boost to India’s semiconductor ambitions, Kaynes Semicon, an Indian company, has successfully shipped the country’s first commercially packaged 900 MCMs to U.S.-based company, Alpha & Omega Semiconductor. An MCM is a compact electronic package that combines several chips into a single unit, making devices faster, smaller, and more power-efficient.

This milestone marks the first time India has produced a complex chip module comprising 17 dyes within a single unit, underscoring the nation’s growing technological and manufacturing capabilities. This is also particularly critical considering that knowledge and overall technologies to develop MCM remain limited.

This shipment was facilitated by the India Semiconductor Mission⁵ and particularly highlights India’s emergence as a credible player in the global semiconductor value chain (and to U.S. participants).

3. India’s largest proposed foreign direct investment (“FDI”) in the Indian banking sector.⁶ 

Emirates NBD, one of the largest banks in the Middle East, has announced that it shall, subject to regulatory approval, acquire around 60% shareholding in RBL Bank Limited for approximately INR 26,850 crore (approximately USD 3 billion) through a preferential allotment, marking the largest-ever FDI and equity fundraise in the Indian banking sector. As part of this transaction: (i) Emirates NBD will also provide an ‘open offer’ to the shareholders of RBL Bank Limited; and (ii) Emirates NBD’s Indian banking branches will be merged into RBL. Once the transaction receives the requisite approvals and is consummated in accordance thereof, Emirates NBD shall be categorized as the ‘promoter’ of RBL Bank Limited, and the shareholding percentages will be adjusted / scaled down to ensure compliance with Indian laws.⁷

This proposed investment comes just months after the RBI granted in-principle approval to Emirates NBD to establish a wholly owned subsidiary in India.

Though this transaction is pending approvals and consummation, it reflects a growing trend of foreign banks deepening their presence in India through ‘control’ deals in the banking and financial services sector, following recent examples like Sumitomo Mitsui Banking Corporation’s investment in Yes Bank (as reflected in our earlier edition here), which only highlights India’s increasing attractiveness as a destination for strategic global banking investments.

4. India Crosses USD 20 billion in artificial intelligence (“AI”) investments.⁸ 

India has officially surpassed the USD 20 billion mark in cumulative and new investment commitments in AI as of 2025, according to recent estimates from the Ministry of Electronics and Information Technology. It appears that this is largely due to Google’s decision to invest around USD 15 billion over the next 5 years in Visakhapatnam, Andhra Pradesh for the development of an AI hub.

This is a major growth from cumulative private AI investments between 2013 and 2024, which, as per the Stanford Artificial Intelligence Index Report 2025⁹ were a total of USD 11.1 billion. 

5. Blackstone enters India’s insurance intermediary market with INR 1,700 crore (approximately USD 205 million) acquisition of Ace Insurance Brokers. 

Global private equity giant Blackstone has acquired a majority stake in Indian insurance brokers company Ace Insurance Brokers for around INR 1,700 crore, marking one of the largest transactions in India’s insurance intermediary sector. Ace provides a comprehensive range of insurance and reinsurance services, and this deal represents Blackstone’s first investment in India’s insurance brokerage market, which handles annual premium placements of approximately INR 50,000 crore (approximately USD 6 billion).

The acquisition underscores growing investor interest in the insurance intermediary space, seen recently with Edme Insurance Brokers’ (formerly Aditya Birla Insurance Brokers) acquisition of UK-based UIB’s India operations in August 2025, reflecting a broader trend of consolidation and global capital inflows into the Indian insurance ecosystem.¹⁰

6. India–U.S. relations make progress and show signs of cooperation with signing of a 10-year defense pact.¹¹ 

The India-U.S. trade relationship has lately been marked by uncertainty, particularly over issues such as tariffs, market access, and regulatory barriers that have at times strained bilateral ties.¹² However, the two countries have recently signed a new defense pact to expand defense cooperation over the next 10 years, after a meeting between U.S. Secretary of War Pete Hegseth and Indian Defence Minister Rajnath Singh in Kuala Lumpur.

As mentioned by Secretary Hegseth on social media, this pact is solidified with the intent to enhance “coordination, information sharing and tech cooperation” and advance “regional stability and deterrence”¹³. The agreement aims to deepen cooperation in all domains, including defense-industrial collaboration, military interoperability across land, air, sea, space and cyberspace, as well as maritime domain awareness over the next decade. This long-term framework not only enhances defense and technology partnerships but also signals renewed trust and commitment between the two nations.

That said, India and U.S. continue to be involved in prolonged discussions on trade and tariffs, which are expected to be concluded within this year. 

PART II – LEGAL AND REGULATORY UPDATES

BANKING, FINANCIAL SERVICES & FINTECH 

Vaibhav Parikh (New York)

Viral Mehta (Mumbai-BKC)

Nishchal Joshipura (Mumbai-BKC)

1. RBI issues Draft Directions on Banks’ Capital Market and Acquisition Financing Exposure.¹⁴

RBI has issued draft guidelines, in the form of two separate directions, namely one for commercial banks and another for small finance banks, redefining how banks participate in India’s capital markets. Pertinently, these guidelines also include the draft framework through which banks can finance acquisitions (such as mergers and acquisitions) in India. The proposed framework aims to deepen market participation while maintaining prudential safeguards and financial stability and are proposed to come into effect from April 1, 2026.  This follows the announcement made during the recent October 2025 Monetary Policy Committee meeting, as captured in our previous edition here, to review the extant prudential limits for capital market exposure,

Few of the key provisions of the draft directions are as follows:

• Capital market exposure (“CME”): CME includes: (i) investment exposures (direct investment in equity and preference shares; convertible bonds; convertible debentures; units of equity mutual fund schemes; and units of alternate investment fund (“AIFs”), exposures to derivatives, etc.); and (ii) credit exposures (such as acquisition finance, bridge loans to companies, underwriting commitments taken up by banks, advances, etc.).
• Prudential Ceilings for CME: 40% of their Tier 1 capital at the end of the immediately preceding financial year (on a solo basis); and 40% of its consolidated Tier 1 capital as at the end of the immediately preceding financial year (on a consolidated basis)¹⁵.
• Direct Exposure Cap: Direct exposure and acquisition financing is capped at 20% of solo / consolidated Tier 1 capital (as applicable), with acquisition financing further capped at 10%.
• Acquisition financing: Banks can now fund Indian corporates for acquiring equity stakes in domestic or foreign companies as strategic investments (with a core objective to create long-term value for the acquirer through potential synergies), for up to 70% of the deal value, while the acquirer must contribute at least 30% as equity. Further, the acquirer should be alisted company having a satisfactory net worth and be profit making for the last three years. A lot of other requirements have also been prescribed in detail in the draft circulars.
• All outstanding loan amounts under the credit facilities should be disclosed as “Notes to Account” in the balance sheet of the bank. 
• Loans for General Business Purposes: Banks can finance commercial entities (not in the nature of financial entities) against eligible securities for financing their working capital or for other productive purposes. Further, they can also provide bridge finance to corporates against the eligible securities already held by them for financing promoters’ stake in new companies, subject to certain conditions.
• Permitted Lending Structure for Acquisition Finance: Banks may lend directly to the acquiring company or to a step-down special purpose vehicle formed specifically for the acquisition.
• Policy and Risk Management: Each bank must establish a formal policy on acquisition finance, detailing borrower eligibility, security requirements, margin, risk management, and monitoring norms.
• Restrictions: The acquiring company or SPV must be a body corporate, not a financial intermediary such as NBFC or Alternative Investment Fund; the acquiring and target entities must not be related parties; the acquisition value must be supported by two independent valuations; and banks must also maintain sub-limits for intraday exposures to manage risk dynamically.

This framework marks a major evolution in India’s financial landscape, enabling banks to prudently participate in high-value acquisitions and capital market activities, thereby improving returns and diversification, while providing corporates structured access to affordable acquisition financing and reducing dependence on high-cost private capital.

2. RBI proposes new risk weights for NBFCs to encourage funding in the real estate sector.¹⁶ 

RBI has proposed key amendments to the Master Direction on Non-Banking Financial Company–Scale Based Regulation, 2023, aimed at recalibrating risk weights for infrastructure exposures of non-banking financial companies (“NBFCs”).

Under the draft amendments, which are proposed to be effective from April 1, 2026, RBI introduces the concept of “high-quality infrastructure projects” in sub-paragraph 5.1.14 (A) (“HQIP”), which refers to projects that satisfy a number of criteria, including (i) completing at least a year of satisfactory operations, (ii) having standard exposure in the books of a lender, (iii) contractual provisions providing high protection to creditors, and (iv) restricting obligors from acting to the detriment of the creditors. Further, the prudential obligations have been modified as follows –

^* If the projects do not meet the HQIP criteria, risk weights under 3 (e) / (g) apply as were applicable previously.

By linking risk weights to repayment track record and project quality, the amendment marks a shift from a uniform to a risk-sensitive, differentiated regulatory framework, fostering stability while catalyzing credit flow to India’s infrastructure sector.  

FOREIGN PORTFOLIO INVESTMENT AND PUBLIC MARKETS 

Kishore Joshi (Mumbai)

Viral Mehta (Mumbai-BKC)

Nishchal Joshipura (Mumbai-BKC)

1. Securities and Exchange Board of India (“SEBI”) proposes corporate governance relaxations for high value debt listed entities (“HVDLE”). 

SEBI has proposed a series of corporate governance relaxations aimed at easing compliance and improving the ease of doing business for HVDLEs. The proposals, which focus on rationalizing thresholds, simplifying governance requirements, and aligning disclosure norms with existing equity listing regulations, include: (i) increasing the HVDLE identification threshold from INR 1,000 crore (approximately USD 120 million) to INR 5,000 crore (approximately USD 600 million) of listed debt; (ii) shifting the definition of a material subsidiary from an income-based to a turnover-based metric; (iii) introduction of a scale-based threshold for determination of the ‘materiality’ of related party transactions, for the purposes of compliance; (iv)  and relaxing board and committee requirements.¹⁷

These proposed relaxations are expected to reduce compliance burden, enhance operational flexibility, and streamline governance for HVDLEs, thereby improving the overall ease of doing business and market efficiency in India’s debt segment.

2. SEBI released consultation paper on comprehensive review of SEBI (Mutual Funds) Regulations, 1996.¹⁸ 

SEBI, in its consultation paper released on October 28, 2025, has proposed significant cuts in mutual fund expense ratios and sharp reductions in the permissible caps on brokerage and transaction costs charged to mutual fund schemes. Other key recommendations also include strengthening governance standards for trustees and AMCs and enhancing accountability of key personnel.

These proposed changes are expected to compress the earnings of asset management companies, brokers, and other market intermediaries.¹⁹  

3. SEBI allows transfer of Portfolio Management Services (“PMS”) between managers.²⁰ 

In a move to streamline mergers and reorganizations in the portfolio management industry, SEBI, through its Transfer of portfolios of clients (PMS business) by Portfolio Managers circular, has permitted portfolio managers to transfer their Portfolio Management Services (“PMS”) business, with SEBI’s prior approval.

The regulator has allowed such transfers of the PMS business (either within the group or otherwise). In case these are intra-group transfers, they can be undertaken either for specific ‘investment approaches’ or for the entire PMS operations. Where the transfer is proposed between portfolio managers belonging to different groups, a joint application for approval must be filed by the transferor and transferee, and the entire business must be transferred (with no flexibility to transfer only selective investment approaches). If the entire PMS business is transferred, the transferor portfolio manager must surrender its PMS registration certificate within 45 days from the date of completion of the transfer.

INSURANCE

Nishchal Joshipura (Mumbai-BKC)

Parul Jain (Delhi)

1. Liberty General Insurance fined INR 1,00,00,000 (approx. USD 120,000) by the Insurance Regulatory and Development Authority of India (“IRDAI”).²¹

IRDAI penalised Liberty General Insurance Co. Ltd. (“Liberty General”) for violation of outsourcing and policyholder’s interest protection norms. As per the press release dated October 28, 2025, Liberty General defaulted on IRDAI (Outsourcing of Activities by Indian Insurers) Regulations (“Outsourcing Regulations”) as Liberty General engaged certain corporate agents for the services related to outsourced activities of seminars and other event management programs, awareness campaigns, policy printing, signage and other display material, distribution of marketing material including brochure, pamphlets etc. IRDAI noted that these payments were in circumvention of existing regulations governing corporate agents as well.

Further, Liberty General was found engaging and paying excessive amounts to related parties of insurance brokers for activities outside the purview of Outsourcing Regulations amongst other violations. The inspection conducted revealed that Liberty General engaged related parties of multiple insurance brokers for servicing the activities outsourced (including data entry, data signage, policy printing, and delivery to customers, distribution of marketing material including brochure, pamphlets, cash / cheque collection, etc.), whereas: (i) the payments made in lieu of these services were exorbitant; and (ii) the entities to whom such payments were made are not primarily into this business.

Based on these violations, IRDAI levied a significant penalty of INR 1 crore (approximately USD 120,000). The IRDAI did not levy penalties on any other violations, and instead only released caution advisories.

MISCELLANEOUS

Vaibhav Parikh (New York)

Viral Mehta (Mumbai-BKC)

Nishchal Joshipura (Mumbai-BKC)

1. Madras High Court Recognizes Cryptocurrency as “Property” Under Indian Law.²²

In a landmark judgment, the Madras High Court has ruled that cryptocurrency qualifies as “property” which is capable of being enjoyed and possessed (in a beneficial form) and can also be held in trust. It further clarifies that cryptocurrencies qualify as ‘virtual digital assets’ under Indian law, which are not speculative in nature as an investment in cryptocurrencies can be stored, traded and sold.

This decision, to some extent, provides long-awaited clarity on the legal status of digital assets, confirming that cryptocurrencies may be recognized and protected under existing property and trust laws. Further, the judgment reinforces the classification of cryptocurrency as a ‘virtual digital asset’ under Section 2 (47A) of the Income Tax Act, 1961.

CONCLUSION

The past month reflects India’s continued progress toward a more transparent, well-regulated, and globally integrated financial system. With active regulatory reforms, renewed foreign investment, and judicial clarity in emerging areas, the ecosystem is steadily evolving to balance innovation with stability. These developments reaffirm India’s position as a leading and trusted hub for global financial activity.

Authors

Sonakshi Babel, Parina Muchhala and Nishchal Joshipura

You can direct your queries or comments to the relevant member.

¹Available at: https://www.livemint.com/market/stock-market-news/fpis-return-to-indian-stock-market-after-3-months-with-1-6-billion-inflows-will-the-momentum-last/amp-11761987376473.html

²Available at: https://scanx.trade/stock-market-news/stocks/fiis-shift-focus-consumer-stocks-out-financials-in-for-october/24213953.

³Available at: https://www.reuters.com/world/india/view-indias-retail-inflation-slows-record-low-025-october-2025-11-12/.

⁴Available at: https://m.economictimes.com/tech/technology/first-india-made-chip-module-sent-to-us-firm-aos/articleshow/124587489.cms.

⁵The India Semiconductor Mission is a strategic initiative undertaken by the Indian government to promote the domestic semiconductor industry. Its aim is to enhance semiconductor design and manufacturing capabilities within the country, fostering innovation, employment, and economic growth. This mission was launched in December 2021. Accessible at: https://www.ism.gov.in/

⁶Available at: https://www.emiratesnbd.com/en/media-center/emirates-nbd-to-acquire-majority-stake-in-rbl-bank

⁷Available at: https://bfsi.economictimes.indiatimes.com/articles/rbl-bank-emirates-nbd-deal-key-details/124685706.

⁸Available at: https://thedialog.net/india-crosses-20-billion-in-ai-investments-aiming-for-global-leadership/?swcfpc=1.

⁹Available at: https://hai.stanford.edu/ai-index/2025-ai-index-report.

¹⁰Available at: https://www.financialexpress.com/business/banking-finance-blackstone-acquires-70-stake-in-ace-insurance-for-rs-1700-cr-4020878/.

¹¹Available at: https://timesofindia.indiatimes.com/india/india-us-ink-new-defence-framework-for-10-years-aim-to-deepen-cooperation-in-all-domains/articleshow/125007676.cms.

¹²Please refer to previous editions of our newsletter for month-wise updates on this development.

¹³Available at: https://www.bbc.com/news/articles/c5y0qz701xeo.

¹⁴Available at: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=61494.

¹⁵Tier 1 capital is a bank’s core measure of financial strength, consisting of its most stable and liquid capital like common stock, retained earnings, and disclosed reserves.

¹⁶Available at: https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4764.

¹⁷Available at: https://www.sebi.gov.in/reports-and-statistics/reports/oct-2025/consultation-paper-on-relaxation-in-the-threshold-for-identification-of-high-value-debt-listed-entities-hvdles-and-measures-facilitating-ease-of-doing-measures-for-hvdle-including-provisions-relatin-_97451.html.

¹⁸Available at: https://www.sebi.gov.in/reports-and-statistics/reports/oct-2025/consultation-paper-on-comprehensive-review-of-sebi-mutual-funds-regulations-1996-_97496.html.

¹⁹Available at: https://www.business-standard.com/markets/news/sebi-s-cost-cut-proposal-seen-squeezing-mutual-fund-broker-margins-125102901393_1.html.

²⁰Available at: https://www.sebi.gov.in/legal/circulars/oct-2025/transfer-of-portfolios-of-clients-pms-business-by-portfolio-managers-_97443.html.

²¹Available at: https://irdai.gov.in/document-detail?documentId=8029138 / https://www.thehindubusinessline.com/news/irdai-slaps-rs-1-crore-penalty-on-liberty-general-insurance/article70221793.ece.

²²Rhutikumari v. Zanmai Labs (P) Ltd., 2025 SCC OnLine Mad 9290.

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