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HAVING PERFECTED THE art of creative confusion, the Finance Ministry and the RBI have little to tell foreign entities keen on buying or upping stakes in Indian banks. The RBI has sought clarification on the subject as policy details fall in the ken of New Delhi, which seems in wintry hibernation. But that has not stopped Bank Brussels Lambert (BBL) from making public its intention to raise its stake in Vysya Bank from 20 per cent to 26-49 per cent. Interested foreigners could quote T.S. Eliot, "time is short but waiting is so long".

Somemonths ago, in an expansive mood, the Finance Ministry announced an FDI/FII cap of 49 per cent for the banking industry. At present, foreign stake in old private and public sector banks stands capped at 20 per cent. Can that go up to 49 per cent? If so, the FDI/FII stake in SBI should go up from 20 per cent to 49 per cent — a view challenged by the RBI, as the regulator and the majority shareholder in SBI. Possibly, the SBI Act and laws governing nationalised banks will have to be amended to enable foreign equity holding above 20 per cent. There is then the standout case of HDFC Bank where the foreign stake is 43.32 per cent as of December 2001 (FIIs including ADR shares account for 29.95 per cent, NRI/OCBs 1.80 per cent, strategic investors 11.57 per cent). As foreign investment comprises FDI, FII, NRI and OCB, does the 49 per cent cap in banking industry include all this?

Anyonemay well wonder over the rumpus when 100 per cent foreign-owned banks have been operating for years in the country. Is there any need to spell out sectoral stakes for FII, FDI, NRI and OCB in new and old private banks if the promoters are agreeable to foreign entry? The same rule could be extended to public sector banks, including SBI, as the government plans to retain a critical 33 per cent stake in them when Parliament decides to okay the plan. The rather naive view that majority government holding is benign for the public does not stand scrutiny going by the over Rs 60,000-crore NPA of public sector banks. In a manner, the same holds for new and old private sector banks after the recent stock market scam. When government winds down its stake to 33 per cent in SBI and nationalised banks (and that has to happen), corporates (Indian and foreign) could spring up as important bidders. Going by the current stance, the RBI does not favour big houses entering the arena and has given in principle clearance to Kotak and Rabo Bank as they are not tied to big ticket corporates. Willy-nilly, the RBI will have to visit the issue again, and also make changes in the cap of 10 per cent on voting rights of a shareholder, irrespective of the number of shares held.

Anycourse change prompted by the entry of foreigners in the banking sector should not cause alarm as the RBI has the experience to handle clone deviations. The central bank can at best be accused of some inertia in dealing with some of the poorly-managed new and old private sector banks; this is not the same as a disabling nerviness. No bank can today wish away the regulatory presence of the RBI, and by 2004 the central bank could be laying down rules on a par with international norms. Then it will not be the complexion of the bank but its performance that will do the talking.

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