Govt to give breather on indirect foreign holding

NEW DELHI: The government is planning to exempt investments by PSU banks and financial institutions (FIs) with foreign stake from calculation of indirect foreign equity holding in an Indian company . The move comes as a relief to companies in which public sector banks or FIs hold stake.

State Bank of India, Punjab National Bank, Bank of Baroda, Andhra Bank, IDBI Bank and IFCI are among banks and institutions with FII holding. The move will keep the route clear for foreign investment in public sector banks and financial institutions. Moreover, Indian companies in which these entities hold stake will have leeway to sell more stake to overseas entities or attract more foreign investment in joint ventures.

Considering that public sector banks and FIs hold significant stake in hundreds of listed companies, officials feel the move will have significant implications for overall foreign investment flow. Details of the methodology for calculation of indirect foreign holding in Indian companies have been finalised by the commerce department and a policy on this issue is being referred to the Cabinet Committee on Economic Affairs (CCEA).

Commerce & industry minister Kamal Nath has proposed that indirect foreign equity holding would be considered beyond the first level of ownership if the stakeholders in subsequent layers are subsidiary companies. If foreign equity is more than 50% or if the subsidiary qualifies to be a subsidiary under the Companies Act, this rule will apply. The commerce department has proposed that the policy should be finalised after inter-ministerial consultations .

“Investment by public sector banks and FIs in the subject company wouldn’t be considered for calculation of indirect foreign equity,” officials said. Indian companies with less than 10% equity in the Indian company (whose foreign holding is under calculation) would not be taken up for indirect foreign equity consideration .

The department of industrial policy and promotion (DIPP) has fixed 10% as the cut-off limit since Companies Act does not confer ownership rights if the holding is less than 10%.