Three of India’s top private banks — ICICI Bank, HDFC Bank and Axis Bank — are majority owned by foreign investors even though management control is with Indians. While the majority foreign stake is legal and within the government rules set by the government and the Reserve Bank of India, foreign investors are reaping the benefits of high valuations and dividend yields.
ICICI Bank currently doesn’t have a promoter. However, over 60 per cent of the bank’s equity held by foreign investors with foreign institutional investors, overseas corporate bodies (OCBs) and foreign companies holding 35.48 per cent as of March 2017. The largest Indian shareholder is LIC with a 10.45 per cent stake. Foreign investors account for Rs 1,11,422 crore of the bank’s Rs 1,85,704 crore market valuation. They also get dividend accordingly.
In Axis Bank, foreign investors hold close to 53 per cent stake. The largest Indian shareholder is LIC, which owns 13.83 per cent while Special Undertaking of UTI (SUUTI) holds 11.48 per cent. Foreign investors account for Rs 74,270 crore of its market capitalisation of Rs 140,133 crore.
Promoters — HDFC Ltd — hold 21.20 per cent stake in HDFC Bank. However, custodians (for ADRs and GDRs issued abroad) hold 18.46 per cent stake and FIIs hold another 34.50 per cent stake as of March 2017, taking total foreign holding to over 52 per cent. The market value of the foreign holding is Rs 2,57,931 crore.
The total market value of foreign shareholding in the three private banks works out to around Rs 4,43,623 crore.
According to the RBI, in terms of the foreign direct investment (FDI) policy (April 2015), the aggregate foreign investment in private banks from all sources (FDI, FIIs/NRIs) cannot exceed 74 per cent of the paid-up capital. At all times, at least 26 per cent of the paid-up share capital will have to be held by resident Indians. Banks (including foreign banks having branch presence in India) can continue to acquire stake in a bank’s equity shares up to 10 per cent of the investee bank’s equity capital.
In HDFC Bank, foreign shareholding in the principal promoter — HDFC — exceeds 51 per cent of their paid-up share capital and accordingly the shareholding in the bank may be deemed as indirect foreign shareholding. The bank then made a representation to the finance ministry stating that the shareholding of the Indian promoters should not be treated as foreign shareholding, says the annual report of the bank.
The high foreign shareholding in private banks at a time when public banks are seeing a bad phase has raised concerns that foreign investors will benefit from the sector’s growth in India at the cost of domestic shareholders. “Four out of five Indian private banks have majority foreign ownership. Voting on that is based on global proxy advisors. On the one hand, look at our banking system. Public sector banks are going through challenges. We’re giving more and more space to private sector banks. Foreign saver is going to benefit. What are we doing?” asked the CEO of a private bank.