FIPB’s objections stem from the fact that the proposal, if cleared, will raise the total foreign direct investment (FDI) in Vysya Bank to 59 per cent since International Finance Corporation (IFC) is a 10 per cent equity partner in the venture, and under the prevailing norms of FDI in banking has been capped at 49 per cent, sources pointed out.
ING’s group company Bank Brussels Lambert (BBL) holds 20 per cent in Vysya Bank at present via wholly-owned subsidiaries BBL Holdings and BBL Investments.
Deferment on the issue by two weeks follows a request from the department of economic affairs, sources said.
Besides breaching the 49 per cent FDI cap, the present proposal will also need an approval from the Central Bank since Vysya Bank has an existing joint venture in insurance sector with foreign investment. “The company (Vysya) has furnished the board resolution of the bank in support of the increase in shareholding of BBL Mauritius Holdings and BBL (by itself or through one or more of its group entities) to 49 per cent of the issued equity share capital of the bank. This would, however, raise the FDI to 59 per cent, which is not permissible,” the board said.
“Moreover, Vysya also has a joint venture in insurance sector with foreign investment,” FIPB said.
As per the proposal, BBL Mauritius Holdings proposes to acquire 54.36 lakh equity shares of Vysya Bank besides acquiring five per cent more of the Indian bank or 11.25 lakh shares through one or more group entities.
Besides, 4.3 per cent of Vysya’s issued capital or 990,379 shares are held by Foreign Institutional Investors, Non-resident Indians and Overseas Corporate Bodies under the portfolio route.
FIPB’s objections follow RBI guidelines as per which “The revised FDI limit of 49 per cent does not carry with it any sub-ceilings for any category of direct investor. FII portfolio limit of 49 per cent is over and above the FDI limit.” Also, there is a 10 per cent cap on voting rights.
Besides, prior approval of the RBI is necessary for foreign investment in banks that have subsidiaries/joint ventures in the insurance sector. RBI may consider such applications in consultation with the Insurance Regulatory Authority of India.