Finance minister P Chidambaram has asked the Foreign Investment Promotion Board (FIPB) to consider giving ICICI Bank conditional approval to bring foreign investors into ICICI Financial Services, the holding company for the bank?s insurance ventures.
According to sources, the finance ministry has now suggested that the FIPB nod may be conditional to ICICI Bank procuring Reserve Bank of India approval within a stipulated timeframe set by the board. Failure to obtain it would result in withdrawal of FIPB approval to induct foreign investment.
The finance ministry is of the view that conditional approval will allow ICICI Bank to get RBI approval to set up the new arm for downstream investments. The move comes after FIPB earlier rejected the bank?s proposal to bring foreign direct investment into its investment subsidiary. The sources said FIPB was likely to take a final view on the issue at its meeting on Friday.
FIPB had rejected the bank?s proposal on the ground that Section 2(g)(i) of IRDA regulations did not allow a subsidiary to be a promoter of insurance business. It also held that the proposal did not comply with the Banking Regulations Act, which limits a banking company?s investments in downstream ventures to 20% of its net worth. In addition, according to Para 2 of the master circular on para-banking, a company cannot set up an investment arm unless the parent has prior RBI approval.
The finance ministry noted that FIPB had earlier given conditional approvals to other companies.
The Insurance Regulatory & Development Authority had allowed ICICI Bank to transfer the holding in two insurance companies?ICICI Prudential and ICICI Lombard?to ICICI Financial services subject to the clause that the bank would continue to be their Indian promoter and that foreign investment would not breach the sectoral cap of 26%.