Reserve Bank of India Turns Down Proposal for 100% FDI in Banks

Published Date : Oct 26, 2015

A government proposal, demanding 100% FDI in Indian banks, has been turned down by the Reserve Bank of India (RBI).

According to sources, the RBI has not stated a clear reason to establish its decision of turning down the proposal, which had been put by the department of industrial policy and promotion (DIPP), the department that looks after the FDI policies in India.

The regulatory body considers the Indian banking sector as a sensitive industry and has maintained its opposition on this matter. The foreign institutional investors are very keen to invest in the Indian banking industry as short-term investors, who can buy and sell a stock in short durations. The prime target of these investors is to book profit and the RBI fears that this move could come as a discouragement for various private sector lenders, including ICICI, Axis, and HDFC Bank.

On the other hand, private banks are expecting a higher ceiling, while investors are also looking for a relaxation. HDFC Bank has recently got permission for 74% FDA, but was found to be in breach of the norms for a while.

In recent past, the RBI had suggested to limit FDI to 49% in the draft norms for new banks, against the 74% cap. The Ministry of Finance, Government of India, however, saw this move as a backward step and compel the RBI to stick to the specified ceiling. A few years earlier, during the tenure of UPA, there had been a huge clash between the RBI and the Ministry of Finance over the application of the FDI norms and policies.