The Housing Development Finance Corporation (HDFC), being a non-banking finance company, can raise the foreign institutional investors' (FIIs) limit to 100 per cent, following the hike in sectoral cap.
However, the State Bank of India will continue to have the 20 per cent cap on FII limit, since its foreign holding is around 18 per cent and it has no room left to increase the foreign holding.
FII limit in most banks will be increased from 24 per cent to 49 per cent, which is the cap on foreign direct investment (FDI) in this sector.
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HDFC Bank managing director Aditya Puri feels this has been a good move in attracting more investments into the country. The bank has already taken shareholders' approval to increase FII investment up to 40 per cent. Currently, HDFC Bank has FII investment of 18 per cent, and FDI investment of around 27 per cent, which includes ADR holding of around 13 per cent. Puri said that he would not look at increasing the approved FII stake as the bank has enough leverage.
In HDFC, the FDI stake is 23 per cent, while FIIs hold 43 per cent. The permissible FII stake in housing finance companies was earlier pegged at 49 per cent. HDFC has already taken shareholders approval to raise the level.
Market sources said the rise in FII limit in the banking sector will help only some banks, as FII interest has been limited to stocks such as HDFC, HDFC Bank, State Bank of India, Corporation Bank and ICICI Bank.
FII holding in ICICI is around 16 per cent, while the American depository shareholders hold 32 per cent in the institution. The total foreign holding in ICICI has be constant at more than the 48 per cent mark for around a year, against its approved limit of 49 per cent.
In the case of ICICI Bank, FII holding stands at around 22.5 per cent, while ADS holding is at around 14 per cent. The bank already has shareholders' approval to increase the FII stake to 49 per cent.