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FIPB may take up HDFC Bank's FDI proposal in next meeting

Last Updated: Tuesday, August 19, 2014 - 16:58

New Delhi: The controversial proposal of HDFC Bank to hike foreign holding may be taken up by the Foreign Investment Promotion Board (FIPB) in the next meeting following clarifications submitted by the bank.

"The issue could not be taken up for consideration so far as the bank had sought more time from FIPB. HDFC Bank had promised to come up with more information which they have submitted recently. We are examining it," sources said.

"After thorough examination, we will list it for FIPB's consideration. It can come up in the next meeting or may be after that as the schedule is yet to be decided," sources added.

However, sources said, the proposal of HDFC Bank is most likely to be rejected in the meeting as it is not conforming with extant guidelines.

Late last year, HDFC Bank had approached the FIPB for increasing the foreign holding in the bank to 67.55 percent from 49 percent. The proposal had come up before the FIPB several times earlier.

According to sources, if the proposal of the bank to raise foreign investment to 67.55 percent is accepted, it would exceed the cap of 74 percent, after taking into account parent HDFC Ltd's stake.

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

DIPP, according to sources, is opposing the hike in foreign investment limit in the bank.

At the end of June 2014, foreign institutional investment (FII) in the bank was 33.93 percent, according to BSE data. Further, foreign investors hold another 16.90 percent shares through ADRs and GDRs.

If the promoter's stake of 22.56 percent is deemed to be foreign, then the total of the above mentioned three categories would take foreign investment to over 70 percent.

FDI, FII, NRI holding, ADR/GDR, convertible preference shares, foreign currency convertible bonds are treated as foreign investment under the FDI policy.

As per the existing guidelines, the foreign holding in a bank cannot exceed 74 percent.

Investments by HDFC Ltd, which is 77.36 percent 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.

First Published: Tuesday, August 19, 2014 - 16:58
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