74% FDI in private banks permitted
By Our Banking Bureau | 01 Mar 2005
Mumbai: The Reserve Bank of India (RBI) has said that FDI in domestic private banks could be up to 74 per cent.
The RBI also said foreign banks would be allowed an increased presence in India in two stages. The first phase starts in March 2005 and ends in March 2009.
The second starts from April 2009. They can operate in India as branches, wholly-owned subsidiaries or as subsidiaries with a 74 per cent holding.
"Appropriate amending legislation will be proposed to the Banking Regulation Act, 1949, to provide that the economic ownership of investors is reflected in the voting rights," a RBI release said.
After April 2009, foreign banks may be permitted to acquire any private bank. During this phase, wholly-owned subsidiaries can list themselves and foreign banks may dilute their holding to the extent that at least 26 per cent of the paid-up capital is held by resident Indians at all times, in keeping with Press Note 2. The dilution may be either by way of an initial public offer or an offer for sale.
But between March 2005 and March 2009 foreign banks will be permitted to take equity only in private banks that the RBI identifies for restructuring and be allowed to acquire a controlling stake in phases.
Existing foreign banks will need to give up their branch licence should they opt for the subsidiary route. Foreign banks setting up wholly-owned subsidiaries will need to have a minimum capital of Rs300 crore, which is also the requirement for private banks.
Where foreign banks apply to acquire 5 per cent and more in a private sector bank, the RBI will take into account the standing and reputation of the banks while giving its permission. The central bank may also specify that the investor bank makes a minimum acquisition of 15 per cent or more and the time for such acquisition.
Any bank, including foreign ones, that has a shareholding in excess of 5 per cent in any other bank in India will be required to indicate a timed plan to reduce such investments to the permissible limit, the release said.
