FII investment ceiling in PSU banks to stay at 20%, for now

NEW DELHI: The government on Friday said that no proposal is under consideration to raise the ceiling of foreign institutional investors’ (FII) holding in public sector banks from the current level of 20%. The government has received representations from public sector banks to increase the foreign investment limit.

“However, at present, there is no proposal under the consideration of the government to amend the limit,” minister of state for finance P K Bansal said in a reply to a question in Lok Sabha. Analysts say that limiting FII holdings in banks attract domestic investors.

FII investments have almost touched the 20% ceiling in nearly half a dozen public sector banks including Allahabad Bank, Andhra Bank, Bank of Baroda, Punjab National Bank and Union Bank of India.

Further, the Reserve Bank of India is monitoring a dozen private banks that have more than 15% FII holding. Banks including Centurion Bank of Punjab, Development Credit Bank, Federal Bank, HDFC Bank, Axis Bank and YES Bank, among others, are being monitored.

In cases where the 20% limit has been reached in public sector banks, fresh purchases by FIIs are barred. According to RBI, in public sector banks, FIIs can invest up to 20% of the paid-up capital and 49% in case of private sector banks.
“I think FII ownership is not an issue. Most banks have a pedigree of FII investors. These are strong global funds,” a CEO of a private bank said.

According to prudential guidelines, aggregate foreign investment in private banks from all sources including FDI, FII and NRIs cannot exceed 74% of the bank’s paid-up capital. Further, individual FII holding in any bank is restricted to 10% of the paid-up capital of that bank.