Central bank voices reservation over 100% FDI in private banks

Currently, 74% FDI is permitted in pvt banks, of which up to 49% is allowed under automatic route and beyond that through FIPB nod

The Reserve Bank of India (RBI) has raised reservations over a proposal to allow 100 per cent foreign direct investment (FDI) in private banks as it might create regulatory problems.

According to sources, the central bank is of the view that 100 per cent FDI may complicate regulations for private and foreign banks.

The proposal to raise FDI limit in private sector banks was recently discussed at a meeting of officials from the ministries of finance, commerce and industry and RBI.

"RBI is studying the proposal along with the finance ministry and the DIPP (Department of Industrial Policy and Promotion). A final decision on the matter is likely to come in a month's time," the source said. At present, the regulations for expansion, priority sector lending and shareholding pattern are different for private and foreign banks.

Currently, 74 per cent FDI is permitted in private sector banks, of which up to 49 per cent is allowed under the automatic route and beyond that through the approval of the Foreign Investment Promotion Board (FIPB).

However, portfolio investments in the banking sector can go up to 49 per cent.

The proposal to raise the FDI limit would help the existing private sector banks, payments banks and small finance banks tap overseas markets to enhance their capital base. RBI has recently given in-principle approval to 11 entities to set up payments banks and to 10 entities for small banks. Foreign direct investment into the country grew 31 per cent to $9.50 billion during April-June this financial year.