FinMin says decision on FDI limit in HDFC Bank soon
Aug 21 2014 , New Delhi
"It is a very complex issue we are dealing with it but I can assure you we are seized of the matter," Economic Affairs Secretary Arvind Mayaram said here when asked about HDFC Bank's FDI proposal.
Late last year, HDFC Bank had approached the Foreign Investment Promotion Board (FIPB) for increasing the foreign holding in the bank to 67.55 per cent from 49 per cent.
If the proposal of the bank to raise foreign investment to 67.55 per cent is accepted, it would exceed the cap of 74 per cent, after taking into account parent HDFC Ltd's stake.
The Department of Economic Affairs (DEA) and DIPP (Department Of Industrial Policy & Promotion) are of view that promoter HDFC Ltd's 22.56 per cent stake in HDFC Bank is foreign investment.
Foreign entities, including FIIs, hold more than 77.36 per cent in HDFC Ltd.
The foreign holding in a bank cannot exceed 74 per cent as per the existing norms.
"As far as FDI composite cap is concerned, there will always be some limitations somewhere otherwise it will be 100 per cent FDI in all sectors," he said at an event organised by Assocham.
Conforming to 74 per cent FDI limit and then 26 per cent by FII would mean 100 per cent foreign holding and no Indian investment, he added.
"So, we need to have this limits on investments... whether this limit is right or wrong, whether it should be removed is another question. When we say composite cap we are saying the total foreign investment of any colour or kind should be at a particular level which in our judgement we believe at this point of time in India is necessary," he said.
At the end of June 2014, foreign institutional investment (FII) in HDFC Bank was 33.93 per cent, according to BSE data. Further, foreign investors hold another 16.90 per cent shares through ADRs and GDRs.
If the promoter's (HDFC Ltd) stake of 22.56 per cent is deemed to be foreign, then the total of the above mentioned three categories would take foreign investment to over 74 per cent.
FDI, FII, NRI holding, ADR/GDR, convertible preference shares, foreign currency convertible bonds are treated as foreign investment under the FDI policy.
Investments by HDFC Ltd, which is 77.36 per cent owned by FIIs, and associate companies, in HDFC Bank were made before 2009, when the government came out with norms to calculate the level of foreign investment in companies.