The Hindu Business Line : Indian promoters of pvt banks can hold 49 pc

THE Reserve Bank of India today raised the ceiling for Indian promoters' equity holding in private sector banks to 49 per cent, providing them level playing field with foreign investors.

Until now, Indian promoters of new banks could hold only up to 40 per cent whereas foreign direct investment (FDI) was allowed up to 49 per cent.

The relaxation is likely to help Kotak Mahindra Finance and Rabo India Finance Ltd, which have received in principle approval from the RBI.

The move is also likely to benefit IndusInd Bank, in which the promoters — the Hindujas — hold about 49 per cent stake. The promoters had sold about seven per cent of their stake in the open market in March. IDBI may also get some leeway as RBI has been asking the institution to bring down its stake in its banking subsidiary, IDBI Bank, to 40 per cent from the current 56.14 per cent.

The IDBI Chairman, Mr P.P. Vora, recently said that the FI was in talks with two FIIs to divest its stake in the bank.

"It is a welcome move. It is a good thing to have parity between the Indian promoters and overseas investors," said Mr P.J. Nayak, Chairman and Managing Director, UTI Bank, which brought down the promoter's holding to about 40 per cent in March.

The RBI, in February this year, permitted FDI in private banks "up to 49 per cent from all sources under the automatic route subject to conformity with the guidelines from time to time''. Consequently, "FDI through strategic investment or private placement in a private sector bank could go up to 49 per cent of the bank's equity. This would be higher than the limit of 40 per cent prescribed for promoters, leading to an anomalous situation vis-a-vis the equity holding of Indian promoters," the central bank said in a press release.

The RBI has, however, not said anything on the FII limit in banks. Investors are waiting for clarification from the Government on what the FII limit in the banking sector would be. Even though the Finance Minister, Mr Yashwant Sinha, said in the Budget that FII cap had been removed in "all but certain sectors'', he has, however, not yet spelt out the "certain sectors''.

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