Foreign holdings: Private banks split

Private sector banks are split over speculation that the government could remove the cap on foreign holdings in them, with some welcoming it, while others are clearly not enthused by the proposed reform measure.

"I think you have to make up your mind whether banking is intrinsic to an economy or not. If it is intrinsic to an economy, do you want all earnings out of something which is intrinsic to the economy to be exported?" asked Kotak Mahindra Bank joint managing director Dipak Gupta. "Banking, whether you like it or not, is sort of a bellwether for how directionally an economy moves. Hence, it is not appropriate to have 100 per cent foreign owned banks," he argued.

However, Rana Kapoor of Yes Bank took an entirely contrasting view and wholeheartedly welcomed the move. "I think it's a good step. There are already two to three banks who are very close to the present cap of 74 per cent. In terms of opening up the market, it will be a good message, a very good signal," he said. HDFC Bank, which is among the large banks to have been hitting the 74 per cent ceiling often, refused to comment saying it is too early and there is nothing on the table officially now. "Cannot comment now as there is nothing on the table," Paresh Sukthankar, deputy managing director of the country's most valuable bank, told reporters over the weekend during the earnings presser.

According to media reports, the government is reportedly planning to allow 100 per cent foreign direct investment in the private sector banks. At present the same is capped at 74 per cent and industry leaders ICICI Bank and HDFC Bank have the maximum exposure to foreign capital. To drive his point home further, Kotak Bank's Gupta drew parallels between defence and banking and said as in the former, the government must not allow 100%foreign ownership in banking should not be doing so in every sector. He also said savers should be given the benefit of all the good that is happening in the core economy.