FIPB may take up HDFC Bank's FDI proposal soon

The controversial proposal of HDFC Bank to increase foreign holding might be taken up by the Foreign Investment Promotion Board (FIPB) in its next meeting, following clarifications submitted by the lender.

“The issue could not be taken up for consideration so far as the bank had sought more time from FIPB. HDFC Bank had promised to come up with more information which they have submitted recently. We are examining it,” sources said.

“After thorough examination, we will list it for FIPB’s consideration. It can come up in the next meeting or may be after that as the schedule is yet to be decided,” sources added.

However, sources said, the proposal of HDFC Bank is most likely to be rejected in the meeting as it is not conforming with extant guidelines.

Late last year, HDFC Bank had approached the FIPB for increasing the foreign holding in the bank to 67.55 per cent from 49 per cent. The proposal had come up before the FIPB several times earlier.

According to sources, if the proposal of the bank to raise foreign investment to 67.55 per cent is accepted, it would exceed the cap of 74 per cent, after taking into account parent HDFC Ltd's stake.

The officials of both DEA (Department of Economic Affairs) and DIPP (Department Of Industrial Policy & Promotion) are of view that promoter HDFC Ltd's 22.56 per cent stake in HDFC Bank is foreign investment.

DIPP, according to sources, is opposing the hike in foreign investment limit in the bank.

At the end of June 2014, foreign institutional investment (FII) in the bank was 33.93 per cent, according to BSE data.

If the promoter's stake of 22.56 per cent is deemed to be foreign, then the total of the above mentioned three categories would take foreign investment to over 70 per cent.

FDI, FII, NRI holding, ADR/GDR, convertible preference shares, foreign currency convertible bonds are treated as foreign investment under the FDI policy.

As per the existing guidelines, the foreign holding in a bank cannot exceed 74 per cent.

Investments by HDFC Ltd, which is 77.36 per cent owned by FIIs, and associate companies, in HDFC Bank were made before 2009, when the government came out with norms to calculate the level of foreign investment in companies.