Govt to allow 100% FDI for holding cos promoting banks

Early this month the Reserve Bank of India had informed applicants for bank licenses that the pattern of shareholding and the capital requirements in the non operative financial holding companies “shall be as prescribed by the respective sectoral regulators. The FDI limits in such entities would be as per extant policy of the government of India”.

The finance ministry has reasoned that while holding companies and sectors like telecom sector will continue under the FIPB route,but 100 per cent foreign investment should be allowed in them.

“The FIPB route needs to be prescribed only when the entity ceases to be under Indian ownership and control”,it adds. This means up to 49 per cent FDI will be under the automatic route,it notes. The department of industrial policy and promotion has been asked to come out with the relevant notifications soon after

“Key ministers of the Union government are expected to meet within July 14 vet the proposals,” a source said. The relaxations will also benefit brownfield pharma sector,single brand retail and asset reconstruction companies.

As the chart above shows instead of the current 24,49,74 and 100 per cent FDI current limits,the government intends to broadly collapse them into three segments.

Only in those sectors where the foreign ownership and control cannot be allowed the note says foreign investment will be retained within 49 per cent. These are print media,broadcasting news and current affairs,stock,commodity and power exchanges.

All others have been sought to be pushed up to a wider limit including investment in civil aviation companies by foreign airlines and in multi-brand retail. Insurance FDI is sought to be raised only up to 49 per cent but through the relaxed proviso of automatic route.

Foreign capital

The plan developed by the finance ministry for liberalisation of foreign direct investment in the economy has been cleared by Prime Minister Manmohan Singh as part of the measures to encourage flow of foreign capital in to the economy.

Finance ministry has reasoned that while holding companies and sectors like telecom sector will continue under the FIPB route,but 100 per cent foreign investment should be allowed in them.

Only in sectors where the foreign ownership and control cannot be allowed the note says foreign investment will be retained within 49%