Private banks: Govt may not change FDI policy

The government said on Monday the new FDI policy 'is doing very well', signalling that the private sector banks like ICICI Bank and HDFC Bank will be treated as foreign entities as majority of their ownership lies with overseas investors.

". . .as of now, the policy which is there is doing very well," commerce and industry minister Anand Sharma said in New Delhi, when asked whether foreign direct investment norms notified in February last year would treat these banks as foreign entities.

According to the Press Notes 2, 3 and 4 of the department of industrial policy and promotion, for a company or entity to be treated as Indian, foreign investment, including American and global depository receipts, foreign currency convertible bonds, convertible preference shares and from non-resident Indians, in it should be less than 50 per cent.

While the control in as many as seven private banks is with the Indians, their foreign ownership is above 50 per cent, thus making them ineligible for being terms as the domestic entities.

Concerned over the issue, some of the banks like ICICI Bank, had approached the government and the Reserve Bank of India.

"Yes there are some banks and the talks have been there between RBI, finance ministry and commerce and industry ministry.

But as of now, the policy which is there is doing very well," Sharma said at an Assocham function, virtually rejecting pleas of these banks seeking exception to the rule.

Consequently, the future investment by these banks, into their subsidiaries in sectors like insurance with caps of 26 per cent could be impacted since the money infusion by the parent companies would be treated as inflows from the overseas sources.

Asked about the problem, Sharma said, "As far as ownership and control is concerned, it has been defined with clarity and the calculations for FDI is much simpler. We have to look at it not from a narrow prism."

Precisely, seven banks -- ICICI Bank, HDFC Bank, Yes Bank, IndusInd Bank, Federal Bank, ING Vysya, and Development Credit Bank get impacted by the new FDI policy as their foreign holding in different forms like ADRs, GDRs exceeds 50 per cent.