FIPB likely to reject HDFC Bank's proposal to increase FDI

The Foreign Investment Promotion Board (FIPB) is likely to reject HDFC Bank's proposal to allow further foreign holdings as it would cross the 74 per cent sectoral ceiling, officials sources said.

"There is no further space to increase foreign investment in the bank. So, FIPB is unlikely to approve the proposal," they said.

Officials of the Department of Economic Affairs and the DIPP were scheduled to meet on Tuesday to discuss the HDFC proposal. However, the proposed meeting was cancelled.

"The Department of Economic Affairs had convened a meeting on the matter. It was cancelled," they said.

The meeting was scheduled to decide whether the 22.64 per cent stake in HDFC Bank of parent HDFC Ltd is foreign investment or not. HDFC Bank had approached the Foreign Investment Promotion Board in the latter half of 2013 to increase the foreign holding in the bank to 67.55 per cent from 49 per cent. According to sources, if the proposal of the bank to raise foreign investment to 67.55 per cent is accepted, it would exceed the cap of 74 per cent, after taking into account parent HDFC Ltd's stake.

According to the existing guidelines, the foreign holding in the bank cannot exceed 74 per cent.

HDFC Ltd, which is 75.71 per cent owned by FIIs, and associate companies, hold 22.64 per cent in HDFC Bank.

Their investments in HDFC Bank were made before 2009, when the government came out with norms to calculate the level of foreign investment in companies. "Downstream investment by HDFC Ltd prior to 2009 in HDFC Bank would be deemed as FDI in case there is any change in the shareholding pattern after the cut-off year," they said. Last week, FIPB did not take up HDFC Bank's proposal. HDFC Bank had approached the Foreign Investment Promotion Board (FIPB) in the latter half of 2013 to increase the foreign holding in the bank to 67.55 per cent from 49 per cent.