Securities and Exchange Board of India
and insurance companies in promotion of venture capital activity in India is discussed hereunder :
6.2.3Banks: RBI had recently allowed banks to invest in Venture Capital funds with a provision that this investment could be treated as priority sector lending. In order to encourage the banks to provide venture capital to start up industries, the RBI should treat venture financing by banks under the priority sectors lending to small scale industries. The investments made by Banks in venture Capital Funds/Undertakings directly or through subsidiaries, should not be counted for the purpose of 5% exposure to the capital market. Further, Banks should be encouraged to extend line of credit to Venture Capital Funds.
6.2.4Mutual Funds: The Mutual Fund industry is fast becoming a channel for routing private savings into capital market. Given that an appropriate regulatory framework for Mutual Funds is in place, it would be desirable that the mutual funds are permitted to invest upto 10% of their corpus in SEBI registered Venture Funds. Within this ceiling, individual Mutual Funds may have their own prudential limits. This would also give the opportunity to retail investors to participate in high growth enterprises through the institutional mechanism of mutual funds. Further, Mutual Funds can set up a dedicated fund for investment in VCF / VCU.
6.2.5Insurance Companies: Insurance companies typically accumulate large pools of capital which is available for investment on a long-term horizon. If such funds are deployed in venture capital industry, these may not only generate good return to the insurance company, at the same time, would provide significant resources to the venture capital industry. Insurance companies may be permitted to invest in SEBI registered Venture capital Funds within certain ceilings.
6.2.6It is seen in many developed and developing countries that the entry of institutional players not only boosted resource mobilisation for venture capital activity but also over a period of time, these institutional investors become expert assessors of the investment activities of Funds and provides appropriate business guidance, as happened in USA. Thus, these investors not only provide large resources for venture capital activity, but also help in developing appropriate system for monitoring the investment by VCF.
(a)In the light of the above it is recommended that the mutual fund, banks and insurance companies should be permitted to invest in SEBI registered venture capital funds.
Report of K B Chandrasekhar Committee on Venture Capital25