According to recent reports, Assocham urged Finance Ministry and the central banking institution to permit banks to make entry in private equity (PE) market via its divisions in order to fund mega projects and to give competition to PE players.

Calling the administration and RBI to revisit its guiding principle on the issue, Assocham stated that such arms of commercial banking institutions should be permitted to fund equity of up to 5% of their total lending.

At present, commercial banks are discouraged from investing in equities because of risks involved in it.

The apex chamber estimated that foreign players invest Rs 40,000 to Rs 50,000 in the PE market in India within a period of 12 months.

It suggested that the country's banking industry to fund 10% of this equity and raise the remaining from high net investors (HNIs) willing to participate in this high-risk-high-return domain.

Assocham said this way India's FDI would thus be curtailed to the degree what subsidiaries of banks are able to raise for the equity market, leaving FDI to meet demand of further growth appetite.

This will also produce competition in the domestic equity market and force FDI investors to lessen their offer price.

Suggesting that most of the time Indian banks have sufficient funds which are either parked with the Reserve Bank or mutual funds, Assocham said such funds can be invested in equities which in turn will help facilitate capacity expansion of Indian economy in manufacturing and infrastructure.

It added that risks of such investment-seeking firms can be further mitigated by capping single investor's stake to not more than 10-15% of the total.

Assocham also suggested that PE arms of banks should not be granted to fund capital requirement of promoters of companies having credit facilities from the promoter bank. (With Inputs from Agencies)