The Hindu Business Line : Stake in private banks — Ministry plans to remove 10 pc cap on voting rights

THE Finance Ministry has proposed lifting the 10 per cent cap on voting rights to facilitate foreign banks acquire majority stake in Indian private banks flagged for restructuring by the RBI.

In the first phase (March 2005 to March 2009) of the roadmap, foreign banks "would be allowed to acquire a controlling stake in Indian private banks in a phased manner," says an RBI press release issued late in the evening.

While running a check on acquisition of 5 per cent or more equity in the local private bank, the RBI "will take into account the standing and reputation of the foreign bank, globally as well as in India, and the desired level and nature of presence of the foreign bank in India. RBI may, if it is satisfied that such investment by the foreign bank concerned will be in the long-term interest of all the stakeholders in the investee bank, permit acquisition of such percentage as it may deem fit.

"The RBI may also specify, if necessary, that the investor bank shall make a minimum acquisition of 15 per cent or more and may also specify the period of time for such acquisition. The overall limit of 74 per cent will be applicable."

But the RBI insists that in the process they will have to abide by the one-mode criterion which allows foreign banks to operate on their own or open a wholly owned subsidiary or acquire 74 per cent stake in an Indian private bank.

HSBC, a foreign bank long operating in India, has acquired around 14 per cent in UTI Bank and could raise it to 74 per cent if the RBI agrees, provided in six months' time HSBC conforms to the "one- mode criterion." HSBC as a foreign bank will then cease to exist.

ING took over Vysya Bank and merged its two foreign branches into ING-Vysya Bank. The RBI has not made public the norms for selecting banks in need of fresh foreign capital though some of the old private sector banks could figure in the list.

In the second phase (April 2009 onwards), the wholly owned subsidiaries of foreign banks will be allowed to list and dilute their stake to 74 per cent with Indian residents holding 26 per cent. The dilution could be through either an IPO or as an offer for sale.

The wholly owned subsidiary (WOS) will have a minimum capital requirement of Rs 300 crore. The WOS will be treated on a par with the existing branches of foreign banks for branch expansion with flexibility to go beyond the existing WTO commitments of 12 branches in a year and preference for branch expansion in under-banked areas.

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Stake in private banks — Ministry plans to remove 10 pc cap on voting rights