Govt sees ICICI, HDFC Bank on same footing as state-run banks

Neither ICICI Bank nor HDFC Bank, even though their equity is owned by foreigners, suffers from any handicap, because they are incorporated in India, noted DIPP secretary R P Singh

The government has assured private sector lenders ICICI Bank and HDFC Bank that they will not be discriminated against vis-à-vis PSU banks even as their status has been changed to foreign-owned Indian-controlled lenders, reports PTI.

"In my view, neither ICICI Bank nor HDFC Bank, even though their equity is owned by foreigners, suffers from any handicap, because they are incorporated in India. They are on the same footing as other nationalised banks and we have nothing to worry about it," Department for Industrial Policy & Promotion (DIPP) secretary R P Singh said.

The Reserve Bank of India (RBI) does not distinguish between these banks and public sector banks, he said.

When contacted, ICICI Bank spokesperson declined to comment on the issue.

Elaborating, Mr Singh said, "Banking is allowed via two ways — either you open branches, in that case you don\'t technically bring foreign direct investment (FDI), or you incorporate a bank in India, take a license from RBI and that particular bank gets equity from outside."

In the second case, he added, the lender technically becomes a foreign bank. "But that bank we are calling foreign bank only for the purpose of downstream investment, otherwise it\'s an incorporated entity in India. It is on the same footing as other nationalised banks in terms of priority sector lending and branch expansion."

Mr Singh also said these banks should not worry about any complications in making downstream investments in the insurance and non-banking finance companies (NBFC) sectors.

"Insurance has been kept out of new (FDI) rules that changed the status of ICICI Bank and HDFC Bank (to foreign owned and Indian controlled) and 100% FDI is permitted in NBFC, so there should be no problem," Singh said.

He further said the department will come out with a paper on the financial sector in a month\'s time that will address the worries of the sector regarding the new FDI rules.

FDI rules announced last year changed the criteria of calculating these investments and included American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible shares also in that category.

Going by these changed rules, ICICI and HDFC banks are lenders that are not owned by Indians, because around 74% of their equities are from outside.

The FDI norms of 2009 also say that if indirect FDI in an Indian company exceeds 50%, its investment in subsidiaries will also be treated as foreign investment.

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