FIPB skips HDFC Bank's proposal to raise FDI limit

24 April 2014

The Foreign Investment Promotion Board (FIPB) has not taken up HDFC Bank's proposal to raise foreign investment limit in the bank for want of clarification on the lender's current investment status.

HDFC Bank had approached the Foreign Investment Promotion Board (FIPB) in the second half of 2013 to increase the foreign institutional holding in the bank to 67.55 per cent from 49 per cent.

However, since its parent Housing Development Finance Corp is deemed to be a foreign-owned company under the FDI policy, the overseas investment holding in the bank has already exceeded the 74-per cent limit allowed in the sector.

The Reserve Bank of India (RBI) is of the view that HDFC Bank is close to foreign investment capital of 74 per cent. Hence the finance ministry said it is treating the promoter shareholding in HDFC Bank as foreign capital.

Instead of granting approval to HDFC for raising foreign investment limit, the Foreign Investment Promotion Board (FIPB) could levy a fine on the bank while giving post-facto approval to the increase in foreign shareholding. However, any further increase, which the bank is keen on, is unlikely to get a green light, at least until the next government comes in.

The finance ministry had also sought the law ministry's opinion on the proposal with respect to the FDI policy. Subsequently, it also sought the views of the Department of Industrial Policy and Promotion (DIPP), the administrative division in charge of FDI policy, and the Reserve Bank of India.

The DIPP, the Department of Financial Services and the Department of Economic Affairs are required to give their opinion on the proposal of the HDFC Bank for raising the FDI limit. 

As of December 2013, HDFC Bank had foreign shareholding of 52.18 per cent.

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