Private sector lenders in the country are rushing to raise the foreign investment (FII) limit in their shareholding in the light of Basel III norms.
Analyst say raising FII limit would insure against future equity or quasi equity requirements.
A slew of banks based in South has already got shareholders? nod to increase the limit of investments by overseas entities including non-resident Indians in their equity capital and many are in the process of doing so.
Banks, which had already got the shareholders nod include Karur Vysya Bank and City Union Bank.
Basel III, the new bank capital rules agreed by global regulators in Switzerland, requires banks to hold top-quality capital totaling 7% of their risk-bearing assets, which may prompt banks to rush for raising capital in the future.
Although, the new capital ratio would be a substantial increase from the current requirement of 2%, analysts feel that it is significantly lower than what banks had feared earlier this year.
?The current rush by banks to raise foreign investment limit is triggered by the new capital adequacy norms as laid out in the Basel III. Though, most of the banks have sufficient capital as of now, once they grow in business, they need to raise fresh capital. Since some of the banks do not have significant promoter holdings, they need to look for sources elsewhere?, an analyst with a local brokerage house told FE.
Tamil Nadu?s old gerneration lender Karur Vysya Bank has increased the foreign holding cap to 35% from the existing 24%.
PT Kuppuswamy, managing director and chief executive officer, Karur Vysya Bank told FE, ? Ours has been the lowest among the banks for almost twenty years for now and we thought that it is time to increase the foreign investment cap?.
The annual general body meeting of the Kumbakonam-based City Union Bank (CUB) has given the nod to fix the FII cap at 30% of the paid-up capital of the bank from the 26%.
N Kamakodi, executive director, CUB, said,? When we fixed the FII limit at 26% some time three years back, we had only 11% foreign institutional investors and during these years it had grown substantially that prompted us to enhance the threshold limit now.?
The bank is in the process of raising funds to the tune of Rs 300 crore by way of qualified institutional placement (QIP).
?The qualified institutional buyers could also be foreign institutional buyers,? he added.