The Budget proposal to simplify the procedure for local firms to attract foreign investments might favour select private-sector lenders, which will be able to raise additional money from foreign institutional investors (FIIs).
“... I propose to do away with the distinction between different foreign investments, especially portfolio and direct ones, and replace those with composite caps. The sectors already on a 100 per cent automatic route will not be affected,” Finance Minister Jaitley said in his Budget speech..
By current rules, foreign holding in private banks is capped at 74 per cent of paid-up voting equity capital. Within this, FII shareholding limit is 49 per cent. Industry analysts and bankers say a simplification will allow FIIs to have up to 74 per cent stake in private banks.
The move could help those like YES Bank and Axis Bank, where FII holding is nearing 49 per cent. “The liberalisation of foreign investments... will enable firms to raise additional equity capital... and help boost the ‘Invest in India’ agenda. This is a bold reform,” says Jaideep Iyer, group president (financial management) YES Bank.
At the end of December 2014, FII stake in YES Bank was 46.32 per cent and that in Axis Bank was 48.52 per cent.
“The banks with about 49 per cent FII shareholding will benefit. They will have more headroom to raise money from FIIs. If banks are not issuing fresh shares, FIIs could buy from the secondary market,” says Vaibhav Agrawal, vice-president research (banking) at Angel Broking.
Industry analysts, however, clarify the private lenders (like ICICI Bank and HDFC Bank), where foreign shareholding is close to 74 per cent will have little room to raise additional money.