Mumbai, Mar 27: Finance Minister Pranab Mukherjee today termed as “conjectures and media speculations” the reported differences between him and the Reserve Bank of India on capping FDI at 49 per cent in new commercial banks, the licences for which are likely to be issued soon. “These are all conjectures. There is no question of happiness or unhappiness. We have just received the draft guidelines from the RBI and it is being examined. These are the two wings of the government; we work together and do not indulge in these kinds of speculations,” Mukherjee said as he rubbished his reported differences with the central bank on the draft proposals.
The Finance Minister was interacting with the media after addressing a post-budget meet organised by the Assocham. The norms seek a cap on foreign direct investment in new private sector banks at 49 per cent.
Earlier in the day, Mukherjee said: “We are studying the Reserve Bank's final draft proposals (on new private bank licences). We would take a call on it soon.” He was said on the sidelines of Sir Sorabji Pochkhanawala (founder of Central Bank of India) Memorial Lecture 2011 as part of the bank's centenary year celebrations here. There were reports in a section of the media that the Finance Ministry was opposed to the RBI suggestion to restrict FDI in new banks to 49 per cent as the change in norms would hurt investor sentiment. The Ministry reportedly asked RBI to reconsider the same.
The move will help the government and the RBI to discourage flow of hot money, which has crossed over USD 60 billion this fiscal, in the country.
The ministry has also reportedly asked the RBI to ensure the guidelines clearly say that the new banks would be exempted from Press Notes 2, 3 and 4. Without such exemptions, these banks would become foreign banks if overseas investment in them crosses 50 per cent, which in turn would lead to imposition of the same restrictions on them that apply on foreign companies.
Already the country's largest two private sector banks—ICICI and HDFC's nationality is under cloud as over 50 per cent of their stake are owned by FIIs. Earlier this month, the RBI had submitted its final draft proposal on new private bank licences to the finance ministry in which it called for a holding company structure for promoters of new banks besides capping the FDI at 49 percent.
According to the proposal, the proposed holding company will own the bank. The guidelines in the draft proposal are not final but provide a clue to the thinking of the RBI on the matter. The norms governing new banks will be made public once the finance ministry responds. The RBI suggested that the exposure of the bank to any entity in the promoter group shall not exceed 10 percent and the aggregate exposure to all the entities in the group shall not exceed 20 percent of the paid-up capital and reserves of the bank.
The central bank also wants the new banks to have a minimum capital Rs 500 crore and that they should be listed within two years.
The FDI hike in banking sector was first suggested by the NK Singh panel but the finance ministry and RBI had added a slew of stringent conditions to prevent ownership of banks going into ‘wrong' hands.
A number of conglomerates such as the Tatas, the Aditya Birla group and Mahindra & Mahindra, L&F among others are keenly awaiting final guidelines, which are likely to be released by the end of this month. PTI
