FIPB fails to take up HDFC Bank's proposal to raise FDI limit

The FIPB today did not take up HDFC Bank's proposal seeking permission to raise foreign shareholding limit in the bank for want of comments from the industry department and the Reserve Bank of India.
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.
"The Department of Industrial Policy and Promotion (DIPP) has not yet sent its comments on HDFC Bank's proposal. So, the HDFC proposal was withdrawn from the agenda," a senior government official said after the FIPB meeting.

Also, the Reserve Bank's comments on the proposal are yet to arrive, he added.
The DIPP, the Department of Financial Services and the Department of Economic Affairs are required to give their opinion on the proposal of the HDFC Bank for raising the FDI limit.
As of December 2013, foreign shareholding in the bank was at 52.18 per cent.

According to industry ministry sources, there is an apprehension that if the proposal of the HDFC Bank to raise its foreign investment limit to 67.55 per cent is accepted, it would exceed the cap of 74 per cent, after taking into account parent HDFC's stake.

HDFC, 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.
The downstream investment by HDFC prior to 2009 in HDFC Bank, the officials said, will be deemed as FDI in case there is any change in the shareholding pattern after the cut-off year.
HDFC Bank, however, has been maintaining that the fresh proposal will not result in breach of the cap as the investments by HDFC Ltd were made before 2009.

In February 2009, the government came out with guidelines to calculate the level of foreign investment, direct as well as indirect, in Indian companies. At the time, it clarified that investments made prior to the guidelines would not be impacted by the 2009 norms.
A bank is required to take FIPB approval to increase its foreign shareholding limit (foreign institutional investment and foreign direct investment) beyond 49 per cent up to 74 per cent. Foreign investment up to 49 per cent can be done through the automatic route.