With the Government rejecting HDFC Bank’s plea that its parent HDFC’s investments not be treated as foreign money, the private lender has withdrawn its application to up the foreign shareholding, said a Government official.
In December 2013, HDFC Bank submitted a proposal to the FIPB to raise FDI to 67.55 per cent from 49 per cent.
The issue with HDFC Bank’s proposal is that foreign investment in the bank is already close to the statutory 74 per cent cap in the FDI policy. If the FIPB allowed foreign shareholding to be raised to 67.55 per cent, the total foreign investment in the bank would breach the 74 per cent cap, after taking into account the 22.64 per cent stake held by HDFC Ltd.
“After scrutinising the proposal, it was clear to us that that there was no scope for it to go through, given the existing ceiling of 74 per cent on foreign investments. The proposal has been withdrawn by HDFC Bank,” the official told
As per the FDI policy effective February 13, 2009, if foreign entities own and control a company, their downstream investments would be treated as foreign investment. “Since foreign institutional investors own 75.7 per cent in HDFC Ltd, the investments made by the company in HDFC Bank has to be classified as foreign investment,” the official said.
HDFC Bank MD Aditya Puri subsequently met Department of Industrial Policy & Promotion Secretary Amitabh Kant to discuss the possibility of raising the foreign investment cap, the official added.
HDFC Bank refused to comment on either development.