Clearing the air on foreign capital norms in the banking sector, the Government on Tuesday permitted full fungibility of foreign investment in private sector banks.

"Foreign institutional investors, foreign portfolio investors and qualified foreign investors can now invest up to the sectoral limit of 74 per cent, provided there is no change of control and management of the invested company," said a circular by the Department of Industrial Policy and Promotion.

The announcement is a part of the government's comprehensive revamp of the foreign direct investment guidelines in more than a dozen sectors.

It is expected to give significant relief and clarity to a number of private sector banks that have been in danger of exceeding the sectoral FDI cap. HDFC Bank had recently taken approval for foreign investment up to 74 per cent.

While FDI up to 74 per cent is permitted for private banks, any increase in foreign capital above 49 per cent requires clearance from the Foreign Investment Promotion Board. Portfolio investment in the sector was also capped at 49 per cent.

Significantly, while composite caps for FDI in various sectors were announced by the government earlier this year, it was not applicable to sensitive sectors such as banking.

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