Fdi Buzz Fuels Fi, Bank Counters

Stock prices of banks and financial institution (FIs) rallied today on hopes that the government would raise the cap on foreign direct investment (FDI) and reduce small savings rates.

Expectations on a rate cut in the cash reserve ratio by the Reserve Bank of India (RBI) also contributed to the bullish sentiment on the stocks.

The Industrial Finance Corporation of India was up 20 per cent to Rs 4.95, Kotak Mahindra Finance up 16 per cent at Rs 94.60, Dena Bank up 11.9 per cent at Rs 7.50, ICICI Bank up 10 per cent to Rs 115.50, ICICI up 10 per cent at Rs 54.55 and the Industrial Development Bank of India up 9.4 per cent at Rs 18 were part of the trend.

Also in the list were Bank of India up 8.17 per cent to Rs 24.50, Bank of Baroda up 5.7 per cent (Rs 51), Housing Development Finance Corporation up nearly 6 per cent (Rs 690), Centurion Bank up 6.5 per cent (Rs 9.90), Federal Bank up 4 per cent (Rs 67), UTI Bank up 4 per cent (Rs 37.45) and State Bank of India (SBI) up 2.7 per cent to Rs 251.05.

Bank stocks have been moving up for the past few weeks on expectations on the Union budget. Raising the FDI limit would mean that foreign banks operating in India can buy stakes in Indian banks even to the extent of a controlling stake.

At present RBI regulations prohibit foreign banks from holding more than a 20 per cent stake in a bank through the direct investment route. The combined holding through FDI and portfolio investments can, however, go up to 49 per cent.

The ING group, through Bank Brussels Lambert, had recently announced its interest in hiking its stake in Vysya Bank from the current 20 per cent to more than 26 per cent.

In the case of SBI, the foreign institutional investor (FII) limit is capped at 20 per cent and there are hopes of this being relaxed.