Decision on Kotak Bank FII limit hike deferred

The Foreign Investment Promotion Board (FIPB) has deferred Kotak Mahindra Bank’s proposal to raise foreign investment limit to 55 per cent from 48 per cent.

At a meeting on Monday, the FIPB, an inter-ministerial panel headed by Finance Secretary Rajiv Mehrishi, deferred a decision as the Department of Financial Services (DFS) is yet to submit its comments on the proposal, a Government official said.

The DEA has asked the DFS to comment on whether the bank, if permitted to have a majority foreign ownership, will be eligible to set up an insurance company. India allows up to 49 per cent foreign ownership in insurance companies.

The FDI rules allow foreign investments up to 49 per cent in banks through the automatic route and up to 100 per cent through the FIPB.

If the FIPB allows Kotak Mahindra Bank to raise foreign investment beyond 50 per cent, it will automatically be classified as ‘foreign owned’.

The Insurance Amendment Act passed in March 2015, which increased the FDI cap in the sector to 49 per cent, said that an Indian insurance company must be ‘Indian owned and controlled’.

Earlier, the government had passed another notification that said that ‘Indian control’ means control of such Indian insurance company by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens.

“Going strictly by these decisions, the insurance ventures held by a number of banks, with high foreign investment component, have flouted FDI norms. But no action has been taken against them,” the official said.

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