Dipp to clarify 'ownership' issue of banks soon

Will see whether any changes in the policy are required for the banking sector

The Department of Industrial Policy and Promotion (Dipp), under the Ministry of Commerce and Industry, would issue a discussion paper in the middle of May to address the contentious ‘ownership and control’ issue of Indian banks while calculating the foreign direct investment (FDI) made in them.

This comes after the department had an extensive meeting with the ICICI Bank and HDFC Bank earlier this week over the issue. “They are certainly not banks owned by Indians because at least 74 per cent equity is from outside (the country). They can be construed as banks controlled by Indians if majority of directors are Indians and right to directorship is with Indians,” Dipp Secretary R P Singh said on the sidelines of an event here organised by industry body CII.

The discussion paper will also seek to assess the policy and whether any changes are required for the banking sector. “We will see if there are any issues and whether the policy is adequate or whether it needs to be changed. These will all be discussed in the paper, which will have views of all stakeholders and then we will see if there’s any problem or not. They can be construed as banks controlled by Indians but not owned by Indians,” Singh said.

However, earlier during the month, Commerce and Industry Minister Anand Sharma had said the policy would not be changed and it had been introduced after extensive inter-ministerial consultations, including all stakeholders, and then passed by the Cabinet Committed on Economic Affairs.

The imbroglio started in February 2009 when Dipp issued Press Notes 2, 3 and 4, which stated that companies that have foreign investment of more than 51 per cent would be classified as foreign firms. Additionally, if that particular company establishes a subsidiary, the investment made by it would be considered as foreign. This may impact the bank’s investment in insurance subsidiaries since there is a cap of 26 per cent FDI in insurance. The press notes have now all been brought under the consolidated FDI policy framework released on March 31.

The banks have also written to the finance ministry and the Reserve Bank of India seeking clarification on the new rules and urged exception in the FDI rules for the banking sector.