FIPB again defers Kotak Bank proposal for raising foreign investment limit

Irdai comments awaited on implications for insurance ventures

The Foreign Investment Promotion Board (FIPB) has deferred for the second time Kotak Mahindra Bank's proposal for raising foreign investment limit in the bank to 55 per cent from the existing more than 48 per cent.

The proposal was put off as comments from the Department of Financial Services (DFS) about the impact of the proposal on downstream investment by the bank in the insurance venture did not come. The Insurance Regulatory and Development Authority of India (Irdai) was to give its comments to DFS. Sources said the comments are likely by the end of this month.

The issue basically relates to an increase in foreign investment in Kotak Mahindra Bank from about 48 per cent after the merger of ING Vysya Bank with it, to 55 per cent.

Private sector banks need FIPB approval, if foreign stake goes beyond 49 per cent. The question is if the stake is increased beyond 51 per cent, would control by foreign investors have repercussions on Kotak's existing insurance arm and the one proposed? The recently passed amended insurance Act limits foreign ownership in the insurance sector at 49 per cent with a rider that control will have to be with Indian entities. However, investment by an entity which is controlled by foreign investors in downstream sectors are also treated as foreign investment. But, there is a carve out for bank-owned insurance companies, since this rule does not apply there. As the issue became complicated, FIPB asked DFS to seek comments from Irdai.

Kotak has a life insurance venture, where foreign investment is at 26 per cent. It has also applied for a general insurance licence through a fully owned subsidiary with the insurance regulator.

Kotak Mahindra and associates are significant shareholders in Business Standard Private Limited