RBI bans fresh purchase of HDFC Bank shares by foreign investors

The Reserve Bank of India (RBI) has restricted further purchase of HDFC Bank's shares by overseas investors as foreign shareholding in the country's second largest private sector lender has crossed the limit of 49% of its paid-up capital.

"...No further purchases of shares of this bank would be allowed through stock exchanges in India on behalf of FII (foreign institutional investor), NRI (non-resident Indian), PIO (person of Indian origin), FDI (foreign direct investment), ADR (asset development reserve) and GDR (global depository receipt)," the central bank said in a notification.

As per the revised FDI guidelines, foreign investors can invest up to 49% in private banks through the automatic route and can increase their shareholding up to 74% only after getting government's approval.

Following the announcement, HDFC Bank's shares shed 4.4% in early trade today. The shares recouped some of the losses later in the day but was still the top loser in the National Stock Exchange's (NSE) benchmark 50-share CNX Nifty index. HDFC Bank's shares ended at Rs 659.25 on NSE, down 3.7% from Monday's close.

In August, 2013 RBI had imposed similar restriction on Axis Bank when the foreign shareholding in the bank topped 49%. A month later the Foreign Investment Promotion Board (FIPB) allowed foreign equity holding in Axis Bank to 62%, subject to the condition that the holdings of FIIs do not exceed 49%.