Finance Minister Jaswant Singh and Commerce and Industry Minister Arun Jaitley are expected to meet shortly to thrash out a formula for raising foreign direct investment (FDI) in private banks to at least 74 per cent from 49 per cent at present.
The department of industrial policy and promotion had pointed out to the finance ministry that the original proposal from the banking division sought to limit the total foreign investment in private banks to 74 per cent, whereas the current dispensation actually allowed 49 per cent investment through the FDI route and another 49 per cent as foreign institutional investment.
According to industry ministry officials, the banking division proposal to restrict foreign investment (FDI plus investments by foreign institutional investors (FIIs), non-resident Indians and overseas corporate bodies) at 74 per cent was retrograde, as private banks can technically have up to 100 per cent foreign investment through a special resolution passed by their boards.
The officials said the ministry was in a bind as having committed to raise FDI to 74 per cent it was left with little manoeuverability on fixing a ceiling on FII investments.
The officials said that the meeting of Singh and Jaitley was expected only after the assembly polls on December 1.
The finance ministry had recently issued a statement that there was no proposal at the current moment to restrict FII holding in private banks at 26 per cent. A senior finance ministry official had said in a press briefing last Friday that there was no clarity on the extent of FII investment permissible in private banks.
He had, however, said the general impression in the market was that FIIs can hold 49 per cent stake in private banks. He also did not rule out a possibility of a 26 per cent cap on FII investment even as the FDI cap was enhanced to 74 per cent, in the future.
