The industry ministry and the finance ministry are holding consultations on whether to bring the banking sector under the purview of new FDI (foreign direct investment) rules, which will categorise some Indian banks -- like ICICI Bank -- as foreign banks.
"One limited area is under discussion -- that is banking sector. We are holding discussion with the Reserve Bank of India, and the finance ministry," Industrial Policy and Promotion secretary Ajay Shankar said at the Economic Editors Conference in New Delhi on Wednesday.
According to the norms issued in February this year through press notes 2, 3 and 4, both ownership and control of banks should be in Indian hands for them to qualify as domestic entities, Ajay Shankar said.
"Now, (in) some of our very large banks control is in Indian hands, but technically ownership of more than 51 per cent is not in Indian hands," he said.
RBI has been opposing these norms since they would change the character of many Indian banks to foreign banks.
Precisely, seven banks -- ICICI Bank, HDFC, Yes Bank, Indus Ind Bank, Federal Bank, ING Vyasya, and Development Credit Bank -- will see their category changed.
Under the new norms American and Global Depository Receipts along with other overseas holding, including NRIs, would also be considered while calculating foreign ownership.
The RBI said with these norms a new category of banks, that is foreign owned and Indian controlled will be created. Also, change in the category could mean they will have to adhere to the 26 per cent cap in sectors like insurance in their joint ventures.
The Reserve Bank also apprehended that investments made by Indian companies -- owned and controlled by non-residents -- in public sector banks would be reckoned as foreign investments and may exceed the statutory limits.
