The move to abolish the limit is aimed at attracting foreign direct investment (FDI) in the banking sector and this will revive investor interest in these banks, say industry officials.

Till now, even if the foreign stakeholder had a 40-per cent stake in an Indian bank, only 10 per cent voting rights were allowed. As per the new proposal, which now awaits the amendment of the Banking Regulation Act, 1949, during the Indian parliament’s post-recess budget session, the actual shareholding will be taken as voting rights.

“But we don’t see any hostile corporate raiders in the banking sector as any acquisition over 5 per cent still requires a Reserve Bank of India (RBI) approval,” says Federal Bank chairman K P Padmakumar. ICICI Bank holds 21 per cent in Federal Bank and has been enjoying voting rights for the 21 per cent through a special provision. “In Federal Bank’s case, we don’t see a major change,” Padmakumar adds.

But the same situation may be different in South Indian Bank, which also, like Federal Bank, is listed on stock markets, and ICICI Bank, the single largest shareholder. With ICICI Bank holding an 11-per cent stake (and voting rights for just 10 per cent), it may not be surprising if ICICI Bank increases its stake in the Thrissur-based South Indian Bank.

The third stock market-listed private sector bank, Dhanalakshmi Bank, too may attract investor interest, after the amendment of the Act shortly, say stock broking sources. South Indian Bank chairman A Sethumadavan could not be contacted as he was out of station while Dhanalakshmi Bank executive director K A Menon refused to comment.

Sources say the removal of ceiling on voting rights may also attract FDI interest in Catholic Syrian Bank (CSB), where Indonesia-based non-resident Indian Chamsrich Chawla is embroiled in an acquisition battle. “With higher voting rights, there is a possibility of Chawla trying to find some buyer for his stake in CSB,” says an official with a prominent broking firm. CSB officials, however, say the Chawla issue hasn’t been solved as yet and added that they don’t foresee a threat of control.

Though the central government had earlier hiked the FDI limit in Indian banks from 49 per cent to 74 per cent sometime back, there is no considerable interest in banking stocks as the voting rights remain at 10 per cent. “Now there could be a revival in banking sector stocks soon,” say broking officials.

In the case of Lord Krishna Bank, the sources add that there could be an active interest in foreign and private banks when the Kochi-based bank comes out with its maiden public issue, which is pending for some time now.