This "flexibility" will be allowed to avoid any settlement problems on the FIIs' transactions of the SBI scrip that might have taken place last week after the GDR pricing took place in New York on October 3. The decision will have other ramifications as the 20 per cent cap was imposed by the cabinet committee on foreign investment.
The exchange control department of the central bank had issued a communication to the custodians on October 5, putting a cap on fresh FIIs purchase of SBI scrip in the secondary market.
The RBI note stated: "Consequent upon the SBI making a GDR in the overseas market, foreign investment (including GDR issue) in the equity capital has been pegged at 20 per cent.....You are advised that no further investment should be made in the equity capital of SBI on behalf of your clients in the secondary market with immediate effect."
Confirming the RBI's "flexible" stand on the FIIs' holding in SBI, one RBI executive said, "The central bank cannot be rigid on this issue. Even if the FIIs' holding marginally cross the 20 per cent limit, we will not object to it," Sources close to the exchange control department of the central bank said RBI will allow the FIIs' holding in SBI at least up to 21 per cent. The decision of the exchange control department to allow the FIIs holding in SBI "marginally cross the limit" is in conformity with the stand taken by the finance ministry.
Earlier, in a letter dated September 17, the department of banking operations and development (DBOD) of the apex bank stated that it would allow SBI "marginal flexibility" in regard to FIIs holding. SBI, however, tried to restrict the FIIs' holding to 20 per cent by not exercising the full greenshoe option despite a 240-per cent oversubscription.
According to market sources, the RBI directive is applicable with effect from October 7, the day it reached the custodians. If the FIIs' stake had already crossed the 20 per cent limit by that time, the directive could not be effected with retrospective effect.
"There is every possibility that the FIIs' holding has crossed the 20 per cent limit after the 26.14 million GDRs were issued last week. The issue size was fixed, keeping in mind the existing FIIs holding was pegged at 11.17 per cent as on September 12. However, between September 13 and October 3 when the GDR pricing took place in New York, the FIIs holding could have gone up,