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New Delhi , Nov. 21

REITERATING its commitment to allow minimum 74 per cent foreign direct investment (FDI) in private banks, the Ministry of Finance on Friday said that it would soon come out with a notification that would remove the clouds over the overall permissible foreign holding status in banks.

Besides the FDI limit, the notification would also clarify the exact extent of foreign institutional investor (FII) holding that would be permitted in the banks.

"We are committed to 74 per cent FDI as announced in the Budget. For the rest, we would have to wait for the final decision. When we announce our decision on foreign holding, I expect there would be total clarity on all issues. We expect to take a decision in 4-6 weeks time," said the Joint Secretary, Banking, Mr Shekhar Agarwal.

Mr Agarwal admitted that there has been a certain degree of uncertainty in the market on the FII limit permitted "because no formal order has been issued on this." He said that the general understanding on the issue is that a 49 per FII investment is permitted over and above the existing 49 per cent FDI allowed in the sector. The exact position would be clarified soon.

He said that the FDI investments in private banks have been subdued on account of the existing 10 per cent legislative cap on voting rights. "We are now amending the Banking Regulation Act to remove the cap for which a Bill is pending in Parliament," he added.

On payment of interim dividend by banks, Mr Agarwal said that all Government-owned banks have also been advised to maximise dividend payment during the year, including the payment of interim dividend. "The Government has written and asked the banks to pay interim dividend, especially after the third quarter results," he said. He, however, added that the decision on the quantum and timing of the dividend would be left to the individual banks.

Mr Agarwal said that while the previous year's dividend paid to the Government by all PSU banks exceeded Rs 800 crore, the figure is likely to be higher this fiscal. The indicative dividend payment figure for the banks is 20 per cent of profit after tax (PAT), while at the same time the figure should not be less than the previous year's payout.

On banks' investment in SLR (statutory liquidity ratio) bonds in excess of their minimum, Mr Agarwal said that credit offtake is not hampered on account of this. "There is enough liquidity in the system," he said. He added that in the long-run banks have their mechanism in place to absorb the impact of interest rate fluctuations.

Mr Agarwal said that besides the initial public offers of Punjab & Sind Bank and Bank of Maharashtra, Dena Bank is also likely to hit the capital market with a second public offer aggregating about Rs 70 crore to Rs 80 crore.

On the issue of return of capital by PSU banks, Mr Agarwal said that the "matter is under consideration."

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