LawMin tells DEA, DIPP to decide on HDFC Bank's FDI proposal

In what could further delay HDFC Bank's FDI plan, the Law Ministry has suggested that the department of economic affairs and the DIPP, a wing of industry ministry, take a view on the proposal of the country's second largest private bank.
The Foreign Investment Promotion Board (FIPB), the nodal body for approving FDI, had sought the opinion of law ministry on HDFC Bank's proposal for increasing foreign holding in the bank to 67.55 per cent from 49 per cent.
"The Law Ministry in its opinion has suggested that DIPP and DEA discuss and decide on the proposal," sources said.
Late last year, HDFC Bank had approached the FIPB with the proposal. Although the proposal came up before FIPB several times, no decision could be taken.

According to sources, if the bank's proposal 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 FIPB meeting tomorrow would not take up HDFC Bank's proposal as DIPP and DEA are yet to reach at a decision on the proposal.

"Unless there is a meeting between DIPP and DEA and a concrete decision is arrived at, the proposal would not come up before the FIPB," a source said.
The officials of both DEA and DIPP would have to deliberate on whether promoter HDFC Ltd's 22.64-per cent stake in HDFC Bank is foreign investment or not.

DIPP, according to sources, is opposing the hike in foreign investment limit in the bank.
At the end of March 2014, foreign institutional investment (FII) in the bank was 34.08 per cent, according to the BSE data. Further, foreign investors hold another 16.97 per cent shares through ADRs and GDRs.
If the promoter's stake of 22.64 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 75.71 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.