The FIPB today cleared the long-pending proposal of HDFC Bank to hike foreign holding in the bank to 74 per cent.
"FIPB today considered and approved HDFC Bank's proposal to raise foreign investment ceiling to 74 per cent," officials said after the meeting of the Foreign Investment Promotion Board.
The FIPB is of the view that HDFC Bank' parent HDFC Ltd's 22.5 per cent holding in the bank is FDI and hence total foreign holding is 73.2 per cent, which includes FII, FDI, ADR and GDR.
"So, the bank now has little headroom to raise funds from foreign investors," the officials said.
Total foreign investment in HDFC Bank was 73.39 per cent at the end of June 2014. It came down to 73.2 per cent at the end of September 2014.
Asked about any possible imposition of penalty by RBI for breaching foreign investment limit by HDFC Bank, sources said it would be decided by the banking sector regulator.
"It would be looked into by RBI if HDFC Bank had breached the foreign investment limit or not," sources said.
Late last year, HDFC Bank, a foreign-owned lender, had approached the FIPB for increasing the foreign holding in the bank to 67.55 per cent from 49 per cent. The bank had sought permission for raising foreign investment limit representing that 22 per cent stake held by the parent HDFC Ltd is a domestic investment.
However, the proposal was not cleared by the FIPB as the Finance and Industry ministries were of the view that HDFC Ltd's 22.5 per cent holding in the bank is FDI.
Taking into consideration the 22.5 per cent parent holding as FDI, the total foreign holding was more than 67.55 per cent when they approached the FIPB for the first time.
Following clarification sought by FIPB earlier this year, HDFC Bank had sent a revised proposal raising its foreign holding ceiling request to 74 per cent, from its earlier proposal of 67.55 per cent.
Banks can have up to 49 per cent foreign investment without regulatory approval but require approval from RBI and the FIPB if they want to increase the foreign investment limit to 74 per cent.
Further, the proposal of pharma company Sanofi was cleared by FIPB in today's meeting along with Punj Llyod's proposal to enter the defence space. FIPB also cleared a proposal of Sun Pharma.
As many as 26 proposals were considered, out of which 15 were approved and rest were deferred, sources said.
