New Delhi: The government has overruled fresh concerns of the Reserve Bank of India (RBI) over Singapore’s state investment vehicle—the Government of Singapore Investment Corporation(GIC)—and Temasek Holdings, allowing them to potentially increase their stakes in ICICI Bank Ltd, the nation’s largest private bank.
“RBI’s concerns have been overruled. It has been pointed out that Prime Minister Manmohan Singh’s decision to treat the two investment arms as separate entities under the bilateral trade pact was made in the presence of the Finance Minister P. Chidambaram and the RBI deputy governor Rakesh Mohan. Since RBI was privy to the decision, it cannot backtrack on the same now,” a top government official, who did not wish to be identified, told Mint.
India had, at the time of finalizing the Comprehensive Economic Cooperation Agreement with Singapore in August 2005, assured the city state that both GIC and Temasek would be treated as distinct investment entities, as a result of which they would have been allowed to own up to 10% each in a listed Indian company, on a par with other foreign institutional investors.
But, as first reported in Mint on 12 February, RBI had pointed out to the government that Temasek controlled a ‘substantial stake’ in Singapore’s largest bank—DBS Bank— which also has two branches in India. It had raised concerns about cross-holding issues regarding Temasek’s investment in an Indian private bank. Temasek holds 28% in DBS Group Holdings, the Singapore-headquartered holding company of DBS Bank.
RBI was of the opinion that with its substantial stake in DBS, Temasek was a promoter of a foreign bank already operating in India. Current RBI rules allow a foreign bank with a presence in India to hold only up to 5% equity in a domestic private bank.
The rules also allow an individual foreign institutional investor to own up to 10% in a bank. RBI’s guidelines also do not allow a single entity or a group of related entities to hold more than 10% equity of a private bank.
The official said it had now been decided that, as a one-off case, GIC and Temasek would be treated as separate entities with regard to their investment in ICICI Bank. “The decision, for the moment, would be made applicable in case of ICICI,” the official said.
This means that both GIC and Temasek will individually be allowed to buy up to 10% each in the private bank. Temasek currently holds 7.41% stake in ICICI Bank, while GIC holds 2.29% stake in the same bank. On a day when the Bombay Stock Exchange soared 469.6 points to 13,049.35, ICICI shares closed at Rs863.40, up Rs36.8, or 4.45%.