NEW DELHI: The government has clarified that ICICI and HDFC banks cannot qualify as Indian-owned banks as more than 74% of their equity is foreign owned. But they can be construed as banks controlled by Indians if the majority of their directors are Indians, department of industrial policy and promotion (DIPP) secretary RP Singh has said.
This would set to rest the debate over the nationality of the two banks. However, it is not clear whether they would continue to be classified as foreign or given a reprieve because of their Indian control.
Both ICICI and HDFC had pleaded that they should not be classified as foreign as it would affect their downstream investments.
According to the current FDI policy, for an entity to be treated as Indian, it should have less than 50% foreign investment, including foreign currency convertible bonds, American and Global Depository Receipts as well as convertible preference shares and from Non-Resident Indians.
The banks do not want to be treated as foreign because this would lead to their investments made in sectors like insurance to be treated as foreign. Since insurance sector has a FDI cap of 26%, the limit could then get breached. Mr Singh said that the issue will be debated in the discussion paper on FDI floated by the department. Replying to questions raised by the media on the government’s stand in the wake of the two banks seeking clarification on their ownership, the secretary said, “at best, the two can be called as Indian-controlled banks”.
Mr Singh confirmed that ICICI bank managing director and CEO Chanda Kochhar had met him earlier this week to talk about the issue. “Day before yesterday, she has discussed (the issue) with me,” he said.
The bank had maintained that it continues to be Indian as its management and Board was Indian. However, both ICICI bank and HDFC bank’s have over 74 % foreign holding, including that of foreign banks and overseas institutional investors.
“Banks will be covered in one paper which we are trying to bring out on financial aspects (of the FDI policy),” Mr Singh said referring to the six discussion papers on FDI that the DIPP has said it would place in the public domain soon.
This would set to rest the debate over the nationality of the two banks. However, it is not clear whether they would continue to be classified as foreign or given a reprieve because of their Indian control.
Both ICICI and HDFC had pleaded that they should not be classified as foreign as it would affect their downstream investments.
According to the current FDI policy, for an entity to be treated as Indian, it should have less than 50% foreign investment, including foreign currency convertible bonds, American and Global Depository Receipts as well as convertible preference shares and from Non-Resident Indians.
The banks do not want to be treated as foreign because this would lead to their investments made in sectors like insurance to be treated as foreign. Since insurance sector has a FDI cap of 26%, the limit could then get breached. Mr Singh said that the issue will be debated in the discussion paper on FDI floated by the department. Replying to questions raised by the media on the government’s stand in the wake of the two banks seeking clarification on their ownership, the secretary said, “at best, the two can be called as Indian-controlled banks”.
Mr Singh confirmed that ICICI bank managing director and CEO Chanda Kochhar had met him earlier this week to talk about the issue. “Day before yesterday, she has discussed (the issue) with me,” he said.
The bank had maintained that it continues to be Indian as its management and Board was Indian. However, both ICICI bank and HDFC bank’s have over 74 % foreign holding, including that of foreign banks and overseas institutional investors.
“Banks will be covered in one paper which we are trying to bring out on financial aspects (of the FDI policy),” Mr Singh said referring to the six discussion papers on FDI that the DIPP has said it would place in the public domain soon.
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