Commerce and Industry Ministry officials insist however that though all foreign investments like FIIs and FDI are being clubbed for limiting the sectoral cap, its applicability on FII investment in banking would be subject to sectoral caps.
While total foreign investment allowed in banking sector is up to 74 per cent, foreign institutional investors (FIIs) are limited to take only 49 per cent.
FII investment cannot be allowed beyond the current limit of 49 per cent for the fear of run on the bank in case foreign portfolio investors suddenly pull out, the official said, adding that it would also apply to the sensitive defence sector.
While FDI up to 49 per cent is allowed in defence, the FII investment can be only up to 24 per cent.
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Introduction of the composite caps on foreign investment, which were approved by the Cabinet today, mean the government would not distinguish between various forms of foreign investments up to the sectoral caps.
"Currently our FII holding is below 49 per cent. Therefore from Yes Bank's capital raising perspective we now have head room to substantially increase the FII holding, given intensive FII interest in Yes Bank in the past. This will enhance flexibility of various capital raising options including ADR or QIP plans," he said.
Tax experts too presented an unclear picture with BMR Advisors saying that they would await for the fine print with regard to the modification of the foreign investment norms.
It further said that one would have to wait for the DIPP rules language on certain aspects.