New Delhi: The Reserve Bank of India (RBI) will treat Singapore’s state investment arms—Temasek Holdings and Singapore Investment Corp. (GIC)—as separate entities when it comes to investment in ICICI Bank Ltd to fulfil India’s obligations under a bilateral pact with Singapore.
Temasek, however, will not get special concessions when it comes to its other investments in India.
As of 31 March 2006, Temasek held a 28% stake in DBS Group Holdings, the Singapore-based holding company of DBS Bank, which has a branch presence in India. Therefore, any investments by Temasek in other Indian banks would have to be in line with RBI’s normal guidelines.
Current RBI rules allow a foreign bank with a presence in India to hold only up to 5% of the equity of a domestic private bank. The banking regulator’s rules also allow a foreign institutional investor (FII) to own up to 10% in a bank.
Senior officials in the commerce and finance ministries said RBI agreed to make an exception in the case of ICICI Bank as the arrangement was a part of India’s obligations under the Comprehensive Economic Cooperation Agreement (CECA) with Singapore.
As a part of that agreement, India committed to allow both Temasek and GIC to take up a 10% holding each in ICICI Bank. Though they have a common owner, the Singapore government, both entities were to be treated as separate entities in the case of this particular bank investment.
Temasek held a 7.41% stake in ICICI Bank and GIC holds 2.29%. Now, they will each be allowed to hike their shareholding to 10%.
After CECA had been signed between the two countries, RBI raised concerns about allowing Temasek to raise stake in ICICI Bank as it cited problems of “crossholdings” on account of Temasek’s substantial stake in DBS Group Holdings.
Even before RBI raised the “crossholding” issue, it blocked an attempt by Temasek to hike its individual stake in ICICI Bank.
Temasek was not allowed to do so by RBI, since both entities were owned by the Singapore government. However, Temasek and GIC got around the problem when the two countries signed CECA.