DIPP clarification soon on FII in banking, defence

By: |
New Delhi | July 18, 2015 12:42 AM

A day after the Cabinet approved a composite-cap policy for foreign investment, sources from the department of industrial policy and promotion (DIPP)...

A day after the Cabinet approved a composite-cap policy for foreign investment, sources from the department of industrial policy and promotion (DIPP), the nodal agency for FDI policy, said they hadn’t proposed it for the banking and defence sectors and could issue a clarification in this regard soon.

“The DIPP did not propose any change in the banking and defence sector FPI/ FVCI sub-limits. So it is to be seen whether the Cabinet has made these modifications on its own (to allow greater investment in defence and banking).

In some instances earlier, the Cabinet had taken decisions independent of what the concerned ministry/department has suggested. We are waiting for the detailed minutes of the Cabinet meeting, which usually takes about a week or so to reach us,” an official told FE.

The custom is that DIPP prepares a press note on the basis of the Cabinet decision fine-print stated in the minutes of the meeting and then issues it. However, this time around, shortly after the Cabinet meeting, the Press Information Bureau issued the statement on amendments approved by the Cabinet to the consolidated FDI policy.

While banking sector stocks gained on Friday, on hopes the composite-cap policy would enhance the scope for foreign capital inflows, the DIPP’s stance now has created ambiguity. The department could come out with a clarification soon, feel analysts.

Apart from removing separate caps for foreign direct, foreign portfolio and NRI investments by bringing composite caps, the government also allowed approval via the automatic route for portfolio investments up to 49% in all sectors where the foreign investment cap is at that level or above.

Although the new policy implies that in sectors where 100% FDI is allowed FPI can also go up to that level, this is practically difficult to materialise. The sectors that would benefit the most from the composite cap policy include brownfield pharma, commodity and power exchanges, credit information companies and infrastructure companies in the securities market (such as stock exchanges, depositories and clearing corporations).

Thursday’s decision meant FPIs could now invest up to 74% in private sector banking, of which investments up to 49% can be via the automatic route — prior to the new policy, FPI investment of up to 49% was permissible in the sector subject to a resolution by its board of directors of the bank followed by a special resolution to that effect by its general body. As regards the defence sector, the new policy implied that FPIs and foreign venture capital funds could invest up to 49% in the sector, as against 24% earlier.

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