ICICI struggling to get rid of its ‘foreign’ tag

April 27, 2009	(Be the first to rate this story!)  Loading ...
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The new guidelines on computing foreign investment in a company incorporated in India has opened a Pandora’s box in the banking sector, with the nationality of ownership of India’s largest private sector banks coming into question.

Seeking to clear the air on its ownership, ICICI Bank has written to the Department of Industrial Policy and Promotion (DIPP) saying that it is not a foreign-owned bank and it will not be covered by the new guideline, a person privy to the development said.

The Reserve Bank of India (RBI) had recently written to DIPP pointing out that, under the revised norms, seven banks would cease to be counted as Indian-owned banks. These banks include — apart from ICICI — HDFC Bank, Development Credit Bank and ING Vysya.

The central bank has sought a review of the new guidelines. The finance ministry, which had earlier opposed tooth and nail DIPP’s move to revise foreign ownership norms, has again raised these issues with it. Interestingly, DIPP has now sought the finance ministry’s opinion on ICICI’s submission. The bank has claimed that it is owned and controlled by resident Indians.

The DIPP verdict on the issue will have serious implications for the banks in which the majority stake is held by foreign investors, including portfolio investors. If classified as foreign-owned, the banks’ downstream investments will also be counted as foreign direct investment, restricting their ability to invest in sectors that have limits on foreign investments, such as the banking sector itself. Classification as a foreign-owned bank could bring in new regulatory restrictions that apply to foreign banks, but do not apply to Indian ones, on activities such as opening new branches.

While ICICI Bank remained silent on a query whether it had written to the DIPP, a spokesperson said, “The material investment that we have in a sector with sector cap is in insurance, where Press Note 2 is not applicable”.

Press Note 2 of 2009, issued on February 13, redefined foreign ownership of Indian companies (an Indian company means, in the context of Press Note 2, a company incorporated in India). As per the new policy, foreign investments include all type of foreign investments — direct investment (FDI), portfolio or foreign institutional investments (FII), non-resident Indian, depository receipts (global [GDRs] and American [ADRs]), foreign currency convertible bonds and preference shares.

Under Press Note 2 of 2009, a company incorporated in India has to satisfy two conditions to be classified as an Indian-owned company: beneficial foreign ownership by all forms of investment must be less than 50% and Indian shareholders must have the right to appoint a majority of its board members.

Accordingly, a company that has more than 50% of such foreign investment would be considered foreign-owned, even if Indians have the right to nominate a majority of board members and thus have control.

News Published Under:   Real Estate India, Foreign Direct Investment in India, Banking and Finance |

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