Decision on HDFC Bank FII Limit likely on May 20
HDFC Bank’s proposal to raise the limit for foreign institutional investors to 67.55% from 49% will now be decided by the new government as the matter is likely to be considered at a meeting of the department of industrial policy and promotion (DIPP) and the department of economic affairs after the declaration of results of the Lok Sabha polls. The two departments are likely to meet on May 20, four days after the declaration of results, a government official said. The departments need to take a call on whether the stake of the bank’s parent HDFC should not be treated as foreign investment by making an exception for a single entity or changing the policy for foreign direct investment. Since this will have wide-ranging implications for the country’s second-largest private lender as well as the entire sector, both departments want to take a studied decision, said the official, who did not wish to be identified. HDFC holds nearly 23% stake in HDFC Bank. Since foreign investors own a majority of shares in HDFC, its entire investment in HDFC Bank will be considered foreign investment, as per the current FDI policy. If HDFC’s stake is considered foreign investment, the total overseas investment in the bank is already nearly 74%, the maximum allowed in private banks under the current policy. In that sense, HDFC Bank is al- Is what HDFC Bank wants FII stake to be increased to from current 49% HDFC’s 22.64% is majority foreign owned
to the FDI policy, HDFC’s entire investment is foreign investment
this foreign investment in HDFC Bank is already nearly 74% ready in violation of the FDI policy – foreign stake in the bank exceeds the limit allowed. The Foreign Investment Promotion Board had sought the law ministry’s opinion on the proposal with respect to the FDI but the latter sought views of the DIPP and the Reserve Bank of India on the matter before taking a call. Both DIPP and RBI termed HDFC’s stake foreign. The law ministry subsequently asked the DIPP and the department of economic affairs to find a way forward since the issue was an outcome of a policy change. The government could also possibly look at exempting housing finance companies just as it has ex- Foreign investment in private sector banks is what the current FDI policy allows
an exemption to housing finance companies from the rule. This was done in case of insurance companies as well
would mean HDFC’s stake would not be counted as foreign investment cluded banks from the 2009 FDI policy norm in respect of their insurance investment. The FDI policy allows 100% foreign investment in housing finance companies. As per the 2009 FDI policy, any company with more than 50% overseas investment or foreign control is considered foreign owned and its downstream investment treated as foreign investment. FDI, foreign institutional investment, shares owned by nonresident Indians, foreign currency convertible bonds and convertible preference shares, and ADRs/GDRs are all counted as foreign investment, according to the policy.