The government on Wednesday allowed HDFC Bank, the country’s largest lender by market capitalisation, to raise Rs 24,000 crore in foreign direct investment (FDI) to fund its business growth.
With the raising of this capital, FDI in the bank would hit the regulatory ceiling of 74 per cent, Finance Minister Piyush Goyal said after the Cabinet meeting here. It will be subject to the Foreign Direct Investment Policy conditionalities and other sectoral regulations or guidelines. Of the additional Rs 24,000 crore, Rs 8,500 crore is proposed to be allotted to HDFC Ltd, the promoter, on a preferential basis. Currently, FDI in the banks stands at 72.62 per cent.
The remaining amount will be raised by issue of equity shares or convertible securities or depository receipts pursuant to a qualified institutions placement, HDFC Bank had said.
The proposed investment is expected to strengthen the capital adequacy ratio of the bank, Goyal said. In February 2017, the foreign ownership limit in HDFC Bank was breached, upon which RBI and Sebi suspended any further buying by FPIs in the stock. As per the RBI guidelines, foreign holding in public sector banks in India cannot go beyond 74 per cent.
As of March 2018, FPIs held 40.4 per cent in HDFC Bank, within which Euro Pacific Growth Fund was the single largest investor with 4.66 per cent stake, Government of Singapore with 1.35 per cent holding in the bank. Indian mutual funds hold 12.08 per cent. LIC holds 2.43 per cent.
The approval includes premium, over and above the limit of Rs 10,000 crore approved in 2015, that the composite foreign shareholding in the bank should not exceed 74 per cent of the enhanced paid-up equity share capital of the bank, Goyal said.
“The decision would ensure that the composite foreign shareholding in the bank inclusive of all types of foreign investments, both direct and indirect, will not exceed 74 per cent of the enhanced paid-up equity share capital of the bank,” the minister added.
According to the RBI guidelines, foreign holding in public sector banks in India cannot go beyond 74 per cent. —With PTI