HDFC Bank FPI trade: RBI, Sebi to tighten norms on trigger point

The Reserve Bank and Sebi are looking into the breach of investment limit by FPIs in HDFC Bank stock and will come out with steps to prevent such violation in the future.

However, there are no plans to change foreign portfolio investment limit for the banking sector which is presently pegged at 74 per cent, sources said.

Sebi and the RBI are looking at tightening trigger points for foreign portfolio investment limit breach for entire banking sector, sources said.

According to a senior Sebi official, the limit breach has thrown various challenges.

The market regulator and the central bank are looking into HDFC Bank FII investment limit breach, the official said, adding the regulators are likely to clarify the trigger points for foreign portfolio investment limit breach for banks soon.

In a rare instance, the ceiling was restored during market hours on February 17 amid overseas entities going on a buying spree of HDFC Bank shares. This has resulted in confusion over execution of trade by some Foreign Portfolio Investors (FPIs) at that time.

The limits on foreign investments in banks are set by the RBI while the trading aspects come under the Securities and Exchange Board of India (Sebi).

Since most trading happens at high speeds, the time difference between RBI ordering stopping of FPI investments and actual operationalisation of the direction would be crucial since a few seconds could result in huge investments.

According to sources, the regulators are looking at how to address the issues of FPI orders placed for HDFC Bank during the time when buying restrictions were restored.

Among the options are annulling the trade orders or making them proprietary trades, whereby the share purchases would be part of the broker's portfolio, sources said.

While these options are practical, implementing them might spark ethical concerns and possibility of litigation as some FPIs might lose out in execution of the trades.

The market regulator is likely to take up issue of Municipal Bonds on priority basis and is in talks with various municipalities including Pune and Ahmedabad.