FIIs hit ceiling in 10 state-run banks

Foreign institutional investors' investments in three more public sector banks "" Andhra Bank, Indian Overseas Bank and Canara Bank - are nearing the 20 per cent ceiling specified by the Reserve Bank of India (RBI).

The FII holding in these three banks went over 19 per cent in the June 2007 quarter, taking the total number of banks, where FIIs are barred from making fresh purchases, to 10.

The list comprises State Bank of India, Punjab National Bank, Union Bank, Bank of Baroda, Allahabad Bank, Oriental Bank of Commerce and Vijaya Bank. Among private sector banks, FIIs has hit the ceiling in ICICI Bank and Centurion Bank of Punjab. 

FII SHARE HOLDING
(In %)	March Quarter	June Quarter
Andhra Bank	19.13	19.17
Canara Bank	17.21	17.46
Indian Overseas Bank	18.03	18.17
Centurion Bank of Punjab	18.17	19.66
Bank of Baroda	20.13	20.13
Union Bank	19.67	19.67
Allahabad Bank	19.40	19.22
Punjab National Bank	20.06	20.06
Oriental Bank of Commerce	19.02	18.01
Vijaya Bank	13.87	13.26
State Bank of India	20.00	20.00

According to RBI, FIIs can invest up to 20 per cent of the paid-up capital in case of public sector banks and 49 per cent in case of private sector banks.

Foreign funds can, however, trades in such shares on the inter-FII trading platform, where the stocks command big premium. For instance in the case of SBI, its share commands nearly 20 per cent premium over its current price in inter-FII trades.

Sameer Gupta, director, Ernst & Young, says, "The RBI has been contemplating relaxing the ownership ceiling in PSU banks. Consolidation could set in as a consequence, which the finance minister has been hinting, time and again."

Gupta also indicates that banks, where FII ceiling has reached, would primarily attract participation from domestic investors.

However, not everyone is in agreement with the point on domestic investors and its impact on valuation of shares.

According to Ravi Trivedi, head of financial services, very often the share is not the only parameter for arriving at a correct valuation, since it also involves a number of factors such as company's growth outlook.