India's ICICI, HDFC Bank to be treated foreign

RBI and other local banks appealed for government’s new policy on overseas investment but were rejected.

ICICI Bank and HDFC Bank, two of the country’s biggest lenders in which overseas investors own more than 51% equity, will now be treated as foreign banks, with the government having decided finally not to carry out further changes to its new policy on overseas investment.

The government’s decision will impact future investment plans of these banks in subsidiaries or in sectors where there is a cap on foreign investment. But investments in financial services, including in insurance, which were all made before the new policy was announced in February 2009 will not come under the ambit of the new rules, said a senior government official with knowledge of the proposal.

The new rules categorise firms which are either predominantly foreign-owned or controlled as foreign companies. In the case of ICICI and HDFC Bank, foreign investment is over 51% although management rests with Indians. India’s foreign investment rules allow for overseas investors to hold up to 74% in private banks through secondary market purchases or through Global Depository Receipts or American Depository Receipts.

A top official in the government said any new investments made by these banks in subsidiaries or other companies will be treated as foreign investment.

View the full story in Economic Times.