Private banks to gain with easing of FDI

Axis Bank, Kotak Mahindra Bank and YES Bank are likely to be the biggest beneficiaries of the central government’s decision to ease foreign investment limits in the sector.

The decision was to scrap the sub-limits for foreign direct investment and foreign institutional investment (FII), instead having a composite cap of 74 per cent. HDFC Bank and ICICI Bank already have a very high foreign shareholding and won’t benefit from this change in norms.

As the process of capital raising will become simpler, lenders actively looking to do so will gain. For instance, YES Bank was planning to raise Rs 6,607.5 crore; it might now go for qualified institutional placement, instead of an issue of American or global depositary receipts. It had said it was preparing for both routes of doing so.

“There will be more capital flowing into the system and significantly ease the procedural investment decisions by foreign investors. YES Bank had got board approval in April and an enabling approval from our shareholders for increasing FII limit up to 74 per cent in the annual general meeting in June. So, we have head room to substantially increase FII holding and this will enhance the flexibility of various capital-raising options,” said Rana Kapoor, its managing director.

Analysts said this move could be a key reason in attracting more capital into the sector to meet the capital adequacy norms under Basel-III rules. At present, all private sector banks are well above  the requirement.

The government was in favour of raising the overall cap on foreign investment to 100 per cent but the Reserve Bank of India had reservations. The central bank felt such a move might blur the distinction between foreign banks operating in India and Indian banks with 100 per cent foreign investment.