Govt hikes FDI limit in HDFC Bank, Lupin; opens $2.6 bn investment window

The government on Wednesday approved proposals by HDFC Bank Ltd and Lupin Ltd to increase foreign investment limits in the two companies, thereby opening a $2.58-billion window for overseas investors.

The government on Wednesday approved a proposal by HDFC Bank Ltd for issuance of equity shares aggregating to Rs10,000 crore to NRIs / FIIs /  FPIs subject to aggregate foreign shareholding in the lender not exceeding 74 per cent of the post issue paid-up capital, opening a $1.6 billion investment window to foreign investors.

The cabinet committee on economic affairs, chaired by the Prime Minister Narendra Modi gave its approval to the proposal of HDFC Bank Limited for maintaining the permissible NRIs / FIIs / FPIs holding in the bank up to 74 per cent of the total paid-up capital and issue equity shares for a total amount of Rs10,000 crore.

The approval would result in foreign investment of Rs10,000 crore (approx $1.6 billion) in the country, an official release said.

The CCEA also approved a proposal by Lupin Limited for increase in aggregate limit of foreign investment in the company from 33 per cent to 49 per cent.

The approval for further foreign investments in the profitable pharmaceutical sector would result in foreign investment of another Rs6,099 crore ($980 million) in the country.

The Foreign Investment Promotion Board had approved the rights offer proposal in October 2014.

The Reserve Bank of India had halted foreign purchases of HDFC Bank shares in December 2013 after the overseas holding limit of 49 per cent had been reached. Foreign investment up to this level is allowed in private banks through the automatic route and any subsequent increase has to be approved by the FIPB.

HDFC Bank then moved a proposal to raise the foreign investment limit to 67.55 per cent from 49 per cent but it was opposed by the RBI, the department of industrial policy and promotion and the department of economic affairs as it was felt that the overseas holding in the bank was already over the limit sought by the bank.

This was because under the 2009 FDI policy a majority foreign-owned or foreign-controlled Indian company would be considered as foreign. HDFC, the parent of HDFC Bank, which has more than 50 per cent of its equity held by overseas investors is already considered a foreign-owned company and its 22.5 per cent stake in HDFC Bank is also counted as foreign investment.