FDI hike in PSBs hinges on RBI review of voting, shareholding norms
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The government's final decision on any further increase in foreign direct investment (FDI) in public sector banks (PSBs) is contingent on the Reserve Bank of India's review of norms on voting rights and shareholding limits, people familiar with the matter said.The government is mandated to hold a minimum 51% stake in state-owned lenders, with overseas investment capped at 20%.The RBI is reviewing the existing structure under which voting rights for promoters of private banks are capped at 26% and financial institutions can hold a maximum 15% stake, said the people cited.The current norms mandate that promoters of non-state banks should reduce their stake to 26% over 15 years. The shareholding limit is capped at 10% for individuals and non-financial institutions subject to RBI's approval."The regulator has indicated that a comprehensive review of foreign shareholding norms is on," said one of the persons cited. "Let them come out with new regulations, and based on that, we will take a call on allowing increased foreign investment in PSBs."India allows 74% foreign investment in private banks."There is a lot of headroom available to meet the cap on foreign investment in PSBs, so there is no immediate requirement for a change in existing laws," said the official cited above.The government and the banking regulator have received various suggestions, including allowing promoters to retain voting rights proportionate to their shareholding, another government official said.The RBI is in consultation with all stakeholders, including the government, the person said."There is wide interest in the Indian economy and financial institutions because they are well regulated and capitalised, in fact more than some financial institutions in developed economies," he added.In an interview with ET in June, finance minister Nirmala Sitharaman had said that India would welcome more banks."The banking sector here is going through one of the best cyclical phases in which scope for expansion is there," she had said. "They are expanding as well, and there is interest in foreign banks coming into India because they see this expansion."She said the central bank should give its decision on applications, one way or another, within a reasonable timeframe.The government is hopeful of a strategic sale in IDBI Bank by October. The government and Life Insurance Corp. of India (LIC) are looking to divest stakes of up to 60.72% in the lender.In May, Japan-based Sumitomo Mitsui Banking Corporation (SMBC) bought a 20% stake in Yes Bank for ₹13,482 crore, in the largest cross-border deal in the Indian banking sector.
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