The government has decided to allow 100 per cent foreign investment in private banks, though the cap on foreign institutional investor (FII) and non-resident Indian (NRI) holdings will be reduced to 26 per cent from 49 per cent.
According to officials, a notification to this effect will be issued by the department of industrial policy and promotion in a few days.
At present, foreign direct investment in private banks is capped at 49 per cent, and an equal percentage is permitted through the foreign institutional investor and NRI routes.
The move to cap foreign institutional investor and NRI holdings at 26 per cent will mean that banks like ICICI Bank, where foreign institutional investors hold over 26 per cent of the paid-up capital, will have to bring down their exposure to the latter within the permissible limits.
The officials said Finance Minister Jaswant Singh had cleared the proposal. In the Budget for 2003-04, Singh had announced that the foreign direct investment limit in private banks would be raised to at least 74 per cent to facilitate investment and setting up of foreign bank subsidiaries in India.
Banks like ABN Amro and HSBC operate through branches in India, and have said in the past that floating subsidiaries would be considered only if the foreign investment limit was raised.
Ramesh Sobti, executive vice-president, ABN Amro said,
