Bain Capital’s planned acquisition of a majority stake in Manappuram Finance has hit unexpected regulatory roadblocks, potentially delaying completion until early 2025, according to three sources familiar with the matter. The $1.4 billion deal, which would mark one of the largest financial sector acquisitions in India this year, faces scrutiny from the Reserve Bank of India over complex structural arrangements.
The American private equity giant announced plans in February to purchase VP Nandakumar’s 34% controlling interest in Manappuram, one of India’s largest gold-loan providers. The transaction, initially expected to close by December 2024, now faces a more prolonged timeline as regulators examine the proposed structure.
“The RBI has raised concerns about Bain’s plan to establish multiple holding entities to manage ownership thresholds,” said a senior banking official who requested anonymity due to the sensitive nature of ongoing discussions. “Indian financial sector regulations impose strict ownership caps, and the proposed arrangement has triggered additional scrutiny.”
According to data from Refinitiv, foreign investments in India’s financial services sector reached $8.2 billion last year, reflecting growing international interest in the country’s expanding credit markets. However, navigating India’s regulatory framework has proven challenging for overseas investors.
The Reserve Bank of India maintains stringent ownership rules designed to ensure financial stability and prevent concentration of control. These regulations typically cap ownership in lending institutions at various thresholds, with different levels of regulatory approval required as ownership percentages increase.
“What makes this deal particularly complex is the balance between Bain’s desire for management control and regulatory requirements limiting single-entity ownership,” explained Rajiv Sharma, banking analyst at CLSA in Mumbai. “The RBI wants absolute clarity on the control structure before giving its blessing.”
Financial sector mergers in India often face extended regulatory review periods. Data from India’s Competition Commission shows the average approval timeline for financial sector deals has increased from 98 days in 2020 to 142 days in 2023.
For Manappuram’s customers across rural and semi-urban India, the transaction’s outcome carries significance. The non-banking financial company serves over 2.5 million customers through more than 4,600 branches nationwide, according to the company’s latest annual report.
Bain Capital and Manappuram representatives declined official comment when reached by Epochedge. However, a person close to the transaction indicated that negotiations with regulators continue constructively, with both parties committed to finding a compliant structure.
“This isn’t about regulatory opposition to foreign investment,” the person clarified. “It’s about ensuring the ownership structure aligns with India’s established financial sector governance frameworks.”
The Financial Times reported last month that foreign direct investment in India rose 37% in 2023, reaching $84.6 billion, highlighting the country’s growing appeal despite regulatory complexities. Private equity firms deployed $35.8 billion across sectors, with financial services attracting the second-largest share after technology.
Industry experts suggest the delay reflects India’s broader approach to financial sector oversight rather than concerns specific to the companies involved. The RBI has intensified scrutiny of ownership structures following governance issues at several financial institutions in recent years.
“What we’re seeing is consistent with India’s careful approach to financial sector investments,” noted Vikram Chachra, founding partner at 8i Ventures, a fintech-focused venture capital firm. “Regulators prioritize stability over transaction speed, particularly for systemically important lenders.”
For Bain Capital, which manages approximately $160 billion globally, the Manappuram acquisition represents a significant expansion of its India portfolio, where it has already invested over $4 billion across sectors. The firm’s patience in navigating regulatory hurdles reflects its long-term commitment to the Indian market, according to industry observers.
When completed, the deal will trigger an open offer for additional shares under Indian securities regulations, potentially increasing Bain’s eventual stake beyond the initial 34% acquisition.
Markets have responded cautiously to news of the delay. Manappuram’s shares declined 2.3% yesterday on the National Stock Exchange, though they remain up 18.5% since the deal announcement in February, according to Bloomberg terminal data.
The transaction’s extended timeline illustrates the balancing act facing global investors in India – navigating between attractive market opportunities and complex regulatory requirements designed to ensure financial stability and governance.
“For international investors eyeing India’s financial sector, the Manappuram case offers valuable lessons,” said Sanjeev Krishnan, financial services leader at PwC India. “Regulatory engagement needs to begin early, with ownership structures designed around compliance rather than retrofitted later.”
As the deal moves toward potential completion in 2025, it may establish important precedents for future private equity investments in India’s rapidly expanding financial services landscape.
