Govt allows Axis Bank to raise foreign equity to 62%

Mayaram says govt yet to decide on SUUTI's stake sale proposal

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With the Cabinet Committee on Economic Affairs (CCEA) clearing Axis Bank’s proposal  to increase its foreign equity to 62 per cent from the present 49 per cent, this will allow the private sector lender to bring in Rs 7,500 crore through this mode.

Any proposal involving foreign direct investment (FDI) above Rs 1,200 crore is cleared by CCEA. Axis, third largest private lender in India, sought a raising of the foreign equity limit after the Reserve Bank (RBI) banned fresh purchases by foreign investors on reaching the sanctioned limit of 49 per cent.

Foreign shareholding in private sector banks is allowed up to 74 per cent of the paid-up voting equity capital. Up to 49 per cent is allowed under the automatic route; for increasing up to 74 per cent, the government’s approval is required.

 

In October, an older generation private lender, Federal Bank, also got the government nod for an increase in the foreign investment limit in its equity, to 74 per cent from 49 per cent. Axis shares rose after the announcement and ended the day at Rs 1,298.20 or 1.2 per cent higher than its previous close, while the broader indices were flat. Arvind Mayaram, the government’s economic affairs secretary, said the government was considering selling the stake in Axis of the Specified Undertaking of the Unit Trust of India (SUUTI) but was yet to decide, news agencies reported. The government has 20.7 per cent stake in Axis via SUUTI.

The foreign shareholding in Axis, as on June 30, was 48.96 per cent. This includes investment through the FDI route in the form of global depository receipts of 8.08 per cent and other foreign holdings, including those of foreign institutional investors (FIIs), of 40.88 per cent.

 

The higher cap on foreign investment will allow tapping of foreign funds. However, due uncertainties in the global financial world, banks did not raise any money through American or global depository receipts in 2012-13.

RBI says banks tend to raise more funds through private placement than public issues. In 2012-13, private banks raised about Rs 17,000 crore through private placement as compared to Rs 6,200 crore the previous year. The number of issuances in the last financial year was also higher at 21 as compared to 11  the previous year. 

Earlier this month, HDFC Bank – the country’s second largest private sector lender – applied to the Foreign Investment Promotion Board for a rise in foreign investment in its equity to 74 per cent, after the foreign shareholding in the bank (FII and FDI) exceeded 49 per cent. RBI, on December 16, barred sale of its shares to FIIs after the 49 per cent ceiling was reached.