Full fungibility of foreign investment norms: Axis, YES, Kotak to benefit

The government’s decision to remove sub-limit restrictions within the overall limit of 74 per cent of foreign direct investment for private sector lenders is seen as a positive for banks such as Axis Bank and YES Bank that have lower foreign investment. Foreign investment in HDFC Bank, however, is close to the overall cap of 74 per cent, and will not gain much because of the move.

Banks such as Axis Bank and YES Bank, where foreign shareholding is 46 per cent and 42 per cent respectively, are likely to be gain, analysts said. Kotak Mahindra Bank is also expected to gain from the move.

“Currently among private sector banks HDFC bank (74 per cent total limit is reached) and Kotak bank (49 per cent FII limit is reached) are under FII restriction list. Kotak bank will benefit as foreign holding can go up to 74 per cent,” said Parag Jariwala, Vice President, Institutional Research, Banking and Financial services, Religare Capital Markets.

The move to allow full fungibility in foreign direct investment and foreign in private banks is expected to help them raise the capital which is required to meet the new Basel-III norms as well as fund business growth. However, the capital adequacy ratio of most private sector banks, unlike their public sector counterparts, are much more healthy.

“FIIs/FPIs/QFIs, following due procedure, can now invest up to sectoral limit of 74 per cent, provided there is no change of control and management of the investee company,” the government had said. Earlier, portfolio investment was permitted up to 49 per cent.

“Though there is no immediate benefit for other private sector banks as they are outside FII restriction as of now, but this is positive for private sector banks such as YES and Axis Bank,” Mr. Jariwala said.

ICICI Bank has welcomed the move saying the move will give greater flexibility for investors.

“…announcement is in line with the government’s ongoing reform process and its objective of enhancing the ease of doing business in India,” Chanda Kochhar, MD & CEO, ICICI Bank said.

Axis Bank

Kotak Mahindra Group

Yes Bank