De­ci­sion on HDFC Bank FII Limit likely on May 20

The Economic Times - - Economy - DEEPSHIKHA SIKAR­WAR

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.

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