Foreign investment norms simplified

Seeking to simplify foreign investment norms, the Union Cabinet on Thursday cleared policy for composite cap on overseas investments by including FDI, FII, and NRI routes into one. 

“From now onwards, all FIIs, NRIs and other foreign investments will be clubbed. It will be constituted as a composite cap,” finance minister Arun Jaitley told reporters after the cabinet meeting.

Jaitley in his budget this year had proposed to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps.

The shares of some banks, especially the private sector lenders, whose FII limits have been crossed, surged as they would no longer need to go to their boards for permission to raise capital.

Shares of Axis Bank gained 4.14 per cent, Kotak Mahindra 4.03 per cent, Yes Bank 3.11 per cent, HDFC Bank 1.54 per cent and  ICICI Bank 0.83 per cent. The Sensex surged 248 points to close at 28,446 and the Nifty advanced 84 points to close at 8,608 after the government simplified rules. 

As of now, total foreign holdings in private banks can go up to 74 per cent but FIIs could buy only up to 49 per cent of the shares. Many banks were constrained due to the dual cap. “One of the most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments,” Jaitley said.

Enhance flexibilityYes Bank CEO Rana Kapoor said the move would ease investment decisions and enhance ease of doing business.

“This will enhance flexibility of various capital raising options,”  he said in a statement. An official statement after the cabinet decision said that in 2014-15 investment through FIIs grew more than seven times to $40.92 billion. FDI grew 27 per cent to $30.93 billion in the same period.In another decision, the cabinet sanctioned an additional Rs 700 crore for the recapitalisation of weak regional rural banks (RRBs).

“The validity period for recapitalisation of RRBs had ended. It has been extended to 2016-17. An additional amount of Rs 700 crore has been sanctioned,” Jaitley said. At present, there is a Budget provision of Rs 15 crore for recapitalisation of RRBs.