Stance on foreign ownership in banks stays, says Centre

He hinted that private sector banks like ICICI Bank and HDFC Bank, whose majority of ownership lies with overseas investors would continue to be treated as foreign entities.

Clear norms

Sharma made these observations when asked whether Foreign Direct Investment (FDI) norms as notified in February last year on issues relating to ownership and control of entities having component of foreign investment would treat these banks as foreign entities. As per FDI norms issued under Press Notes 2, 3 and 4 of the Department of Industrial Policy & Promotion, for a company or entity to be treated as Indian, foreign investment including American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), foreign currency convertible bonds, convertible preference shares and from Non-Resident Indians, in it should be less than 50 per cent.

Future investments

There are now seven leading private banks like ICICI Bank and HDFC Banks, which are controlled by Indians, while their foreign ownership is above 50 per cent.  

As a result from investment calculation point of view these do not qualify to be treated as domestic entities.

Consequently, the future investment by these banks into their subsidiaries in sectors like insurance with caps of 26 per cent foreign investment could face problem since the money infusion by the parent companies would be treated as inflows from the overseas sources. Because of the ambiguity over the issue of calculation of FDI component in their future investment in other lucrative financial services areas like insurance some of the banks like ICICI Bank had approached the government and the Reserve Bank of India for clarification.

Anand said some had approached the Centre on the issue.