Officials undecided on foreign investment in HDFC Bank

A meeting to take the views of the industry department, finance ministry and the Reserve Bank of India (RBI) on raising the foreign investment limit in HDFC Bank remained inconclusive on Tuesday. Now, Finance Secretary Arvind Mayaram would decide whether another meeting is to be held or the matter would straight go to the Foreign Investment Promotion Board (FIPB), sources said.

Besides RBI, officials of the department of industrial policy and promotion (DIPP), under the commerce & industry ministry, and the department of economic affairs (DEA), under the finance ministry, participated in the meeting.

"We met to understand the issue. The meeting was inconclusive," an official said.

HDFC Bank has proposed to increase foreign investment to 67.55 per cent from 49 per cent.

However, the catch is foreign investment in HDFC Bank is already close to the statutory cap of 75 per cent, according to a different calculation. Foreign institutional investors (FIIs) hold a 75.7 per cent stake in Housing Finance Development Company (HDFC), the parent company that owns 22.64 per cent in HDFC Bank.

According to foreign direct investment (FDI) policy that came into effect from February 13, 2009, if foreign entities own and control a company, its downstream investment would be taken as foreign investment. In fact, both RBI and DIPP are learnt to have opined earlier that parent HDFC's 22.64 per cent stake in HDFC Bank should be considered foreign investment and not domestic.

However, the bank is of the view that its proposal was legally tenable as HDFC's holding in HDFC Bank should be exempt from new regulations, as the stake already existed when the law came into being.

Shares of HDFC Bank ended 0.47 per cent up at Rs 815.65 on the BSE on Tuesday. The meeting between DIPP, DEA and RBI officials was held after market hours.