Rise in FDI cap to help Axis Bank stake sale: Fitch

At present govt-owned enterprise Specified Undertaking of Unit Trust of India holds 20.7% in Axis Bank

The government’s recent decision to increase foreign investment limit in Axis Bank from 49 per cent to 62 per cent will attract overseas investors’ interest in the planned stake sale, global rating agency Fitch said on Thursday.

At present, government-owned Specified Undertaking of Unit Trust of India (SUUTI) holds 20.7 per cent in Axis Bank. The anticipated sale of one-half of that stake could fetch about Rs 6,000 crore for the government. According to Fitch, this will help the government’s efforts to meet its disinvestment target, Rs 54,000 crore for FY14.

The planned stake sale is also expected to help the government meet its fiscal deficit target of 4.8 per cent of GDP.

However, the government's plan to sell part of its stake in Axis Bank “does not reflect a strategic shift in support for its majority-owned banks (public-sector banks)”, Fitch noted. “The probability of support for majority-state-owned banks remains anchored by governing acts, which cannot be easily changed.”

According to Fitch, the prospect of support and the maintenance of the government's majority stake in these banks is by virtue of the respective acts, which govern these banks.

It said that any plan to reduce ownership below 51 per cent for nationalised banks and 55 per cent for State Bank of India would require amendment of these Acts by Parliament. The agency, however, is of the opinion that such amendments are not unlikely to happen soon, given the political considerations of such an action.

Moreover, the government has shown its continued willingness to extend support via regular capital injections, it noted

A reduction in state ownership , through SUUTI, could change the board composition of Axis Bank, but not its day-to-day operations. Any reduction in the three (out of the 14) board seats held by the government is unlikely to alter the way the bank is managed, it added.