BANKS HAVE LITTLE
ROOM FOR MORE FII FUNDS
Foreign investment in an increasing number of Indian banks is
close to hitting the upper limit set by the government, shrinking
the headroom available for offshore investors to buy more.
Several banks have been witnessing sustained
institutional buying of late, driven by hopes of better prospects
for the sector. The security enforcement law, hopes of post-polls
reforms in the sector and rumours of a greater consolidation
in the days to come may have buoyed the sentiment, feel analysts.
The net foreign holding (including FII,
NRI, OCB and GDR) in two large PSU banks - Bank of Baroda
(BoB), Oriental Bank of Commerce (OBC) - and a small private
bank - Centurion - has already reached the trigger limit of
18% and 72%, respectively.
Recently, ICICI Bank, the second largest bank in the country,
saw the foreign holding rise to 72% of its equity capital.
The holding has risen above the trigger limit at 72.7%, as
reflected in the shareholding pattern for the quarter ended
March '04. Of this, 46.7% is held by FIIs, while nearly 26%
is in the form of ADS holding. However, subsequent to the
share allotment of its recent public issue, the combined foreign
holding will come down.
Under the new foreign direct investment
(FDI) guidelines, the total foreign holding in private sector
banks cannot exceed 74% of the equity capital. The central
bank has fixed a trigger level of 72% to ensure that investment
plans in the pipeline do not result in foreign shareholding
breaching the limit. In the case of public sector banks, which
are governed by the Banking Companies (Acquisition & Transfer
of Undertaking) Act, the upper limit for foreign holding is
fixed at 20%, with the trigger limit at 18%.
State Bank of India (SBI), the largest
commercial bank in the country, has a total foreign holding
of 19.3%, including the 11.4% held by FIIs and 7.9% by GDR
holders. The banking behemoth wants the government to exclude
GDR from the foreign holding limit, but no action has been
taken on it.
There are several other non-banking companies
who have hiked their respective FII holding limits. FII holding
in companies such as Moser Baer, SSI, Alok Inds, Amtek Auto
and Suven Life Sciences has been going up steadily, following
which the companies have decided to hike the upper limit.
Alok Industries and Amtek Auto have hiked
the FII limit to 49% from 22%, while Suven Life Sciences and
Moser Baer India have passed necessary resolutions for raising
FII limits to 40% and 74%, respectively.
Foreign holding in M&M and MphasiS have touched the 22%
limit, subsequent to which RBI has barred any further FII
purchases in the two companies without its prior approval.
