HDFC Bank trades settled smoothly, foreign holding cap intact

Trades have been settled smoothly in HDFC Bank shares while keeping the foreign holding limit intact and any trade annulment is unlikely after brokers took to their own proprietary books a 'small' quantity of excess shares bought on behalf of overseas clients.
Buying spree by foreign investors had led to a breach of their maximum purchase limit in HDFC Bank on February 17. This came a day after RBI had lifted curbs on fresh buying by such investors in the private lender as their stake fell below the prescribed limit.
According to sources, settlement took place normally at all stock exchanges yesterday and small amount of shares has been taken by the brokers on their proprietary accounts. This has made a case for any trade annulment unlikely.

Normally also, it happens that a broker has to take some shares on its proprietary books due to time zone difference in other regions when the broker is unable to contact the custodian of foreign or even domestic investor to confirm the delivery.
While it could not be ascertained about the quantum of temporary breach of the foreign holding beyond the permitted 74 per cent, sources said it would be very small amount as settlement process was very smooth and any annulment of trade is very unlikely.
A day after allowing FPIs to buy shares of HDFC Bank, the Reserve Bank of India (RBI) on February 17 restored the cap as the exposure crossed the prescribed 74 per cent threshold.

In a rare instance, the ceiling was restored during market hours on February 17 amid overseas entities going on a buying spree of HDFC Bank shares. This has resulted in confusion over execution of trade by some foreign portfolio investors (FPIs) at that point.

Currently, FPI exposure to banking companies is capped at 74 per cent and the sources said there are no plans to change foreign portfolio investment limit for the sector.
The confusion related to HDFC Bank shares has thrown up a peculiar situation for the two watchdogs -- Sebi and RBI -- as well as the stock exchanges, which actually enforce the limits and stop foreign entities from buying shares in case the cap is reached.

The limits on foreign investments in banks are set by RBI while the trading aspects come under the Securities and Exchange Board of India (Sebi).
Moreover, Sebi and RBI are working on a more robust system for reporting of trades done by FPIs and ensure compliance with sectoral caps.