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Green light to composite foreign investment cap turns banking stocks sanguine

WT24 Desk

In an encouraging development for private sector banks, Cabinet has approved the proposal to merge the limits of foreign direct and portfolio investments into composite caps, in order to simplify foreign investment regime easier. With this, the composite foreign investment caps will encompass all types of foreign investments. So far, composite caps have been suggested for sectors like agriculture, tea plantations, petroleum and natural gas, manufacturing, airports, real estate, telecommunications, mining, non-banking financial companies and pharmaceuticals.

Nevertheless, this announcement doesn’t come as a surprise as Finance Minister in his budget speech had proposed the plan to eliminate the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps. Besides, investments by non-resident Indians and foreign venture capital firms have been allowed in sectors, where only FDI and FII investments have been allowed. These include up to 100% foreign investment in asset reconstruction companies, 74% in private banking, 20% in public-sector banks and 49% in power exchanges.

This development is a shot in the arm to all private sector banks especially mid-sized private sector lender YES Bank, which is planning at raising money through an ADR issue under its $1-billion capital infusion plan next fiscal.  The bank’s FII’s holding for quarter ended March, 2015 stands at 45.05%. Meanwhile, Axis Bank stocks shot up nearly 5% after the announcement of this news. The bank’s FII holding stands at 44.51% for quarter ended June, 2015, IIFL reports.

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