Banks and financial institutions may have to undertake an equity restructuring exercise for their downstream businesses following the reluctance of the department of industrial policy and promotion (DIPP) to tinker with the foreign direct investment norms announced in February.
As first reported in HT on April 20, the RBI said that under the new norms for computation of foreign investments, many Indian private sector banks would now have to be considered as “foreign owned (though Indian controlled).”
A DIPP official said that no changes in the FDI norms are expected except for a few clarifications on certain ambiguous issues raised by the RBI and the Finance Ministry.
However, the DIPP is likely to convene a meeting of top executives of private sector banks to thrash out the anomalies.
The DIPP official said among the clarifications that are expected to come include exclusion of foreign currency convertible bonds (FCCBs) in the calculation of equity stakes. The RBI is of the view that inclusion of FCCBs as foreign investment instrument may lead to ambiguities since these are debt instruments unless they converted into equity.
ICICI Bank joint managing director Chanda Kochhar said on Tuesday that the bank was awaiting clarification on the issue of foreign bank status.
Amongst the banks affected by the FDI rules are ING Vysya, ICICI Bank, Development Credit Bank, Yes Bank, IndusInd Bank, Federal Bank and HDFC Bank. These banks may now have to change their equity holding pattern to abide by the new norms.
Four of these banks hold more than 26 per cent in insurance companies. By categorising these banks as foreign banks, they would now breach the 26 per cent FDI cap in the insurance sector.