Home / Industry / Banking /  Decision on FDI limit in HDFC Bank soon: Arvind Mayaram

New Delhi: The finance ministry on Thursday said it is looking at issues connected with HDFC Bank’s proposal to raise foreign direct investment (FDI) limit in it and will take a decision shortly.

“It is a very complex issue we are dealing with it but I can assure you we are seized of the matter," economic affairs secretary Arvind Mayaram said when asked about HDFC Bank’s FDI proposal.

Late last year, HDFC Bank had approached the Foreign Investment Promotion Board (FIPB) for increasing the foreign holding in the bank to 67.55% from 49%. If the proposal of the bank to raise foreign investment to 67.55% is accepted, it would exceed the cap of 74%, after taking into account parent HDFC Ltd’s stake.

The Department of Economic Affairs (DEA) and DIPP (Department Of Industrial Policy & Promotion) are of view that promoter HDFC Ltd’s 22.56% stake in HDFC Bank is foreign investment.

Foreign entities, including foreign institutional investment (FIIs), hold more than 77.36% in HDFC Ltd. The foreign holding in a bank cannot exceed 74% as per the existing norms. “As far as FDI composite cap is concerned, there will always be some limitations somewhere otherwise it will be 100% FDI in all sectors," he said at an event organised by Assocham.

Conforming to 74% FDI limit and then 26% by FII would mean 100% foreign holding and no Indian investment, he added. “So, we need to have this limits on investments... whether this limit is right or wrong, whether it should be removed is another question. When we say composite cap we are saying the total foreign investment of any colour or kind should be at a particular level which in our judgement we believe at this point of time in India is necessary," he said.

At the end of June 2014, FII in HDFC Bank was 33.93%, according to BSE data. Further, foreign investors hold another 16.9% shares through ADRs and GDRs. If the promoter’s (HDFC Ltd) stake of 22.56% is deemed to be foreign, then the total of the above mentioned three categories would take foreign investment to over 74%. FDI, FII, NRI holding, ADR/GDR, convertible preference shares, foreign currency convertible bonds are treated as foreign investment under the FDI policy. Investments by HDFC Ltd, which is 77.36% owned by FIIs, and associate companies, in HDFC Bank were made before 2009, when the government came out with norms to calculate the level of foreign investment in companies.

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