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The Department of Industrial Policy and Promotion (DIPP) has said that it has no objections to Kotak Mahindra Bank’s proposal of increasing foreign investment in the bank to 55 per cent.
It has, however, added that the decision of the Department of Financial Services (DFS) should prevail on the matter, as the issue has a bearing on the company’s proposed insurance venture too, a government official told BusinessLine .
The Foreign Investment Promotion Board (FIPB), which considers FDI proposals where approval is not automatic, will take up Kotak Mahindra’s proposal in its meeting scheduled on Friday. A decision on the proposal has already been deferred four times.
“In its comments to the FIPB, the DIPP has said that it does not have any objections to the proposed increase in foreign investments in the bank as it does not flout FDI rules. But at the same time it said that it would support what the DFS decides,” the official added.
Insurance angleIndia’s FDI policy allows 100 per cent foreign investment in banks. But, Kotak Mahindra’s plan of launching a general insurance venture has complicated the matter.
The Insurance Amendment Act passed in March 2015, which increased the FDI cap in the sector to 49 per cent, stated that an Indian insurance company must be ‘Indian owned and controlled’.
If Kotak Mahindra is allowed to increase foreign investments in the bank to 55 per cent, it will qualify as ‘foreign owned’.
In that case, it is not clear whether it will be eligible to set up an insurance company.
“There are some other life and general insurance companies operating in India where the foreign ownership in the Indian promoter company is more than 50 per cent.
“The argument in favour of banks is that since management in banks is in Indian hands and foreign shareholding is mainly portfolio shareholding, they may be seen as Indian-owned Indian managed company,” the official said.
But a final call on the matter rests with the DFS.
The Insurance Regulatory and Development Authority, the insurance sector regulator, too, has sought the views of the DFS on the issue.
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