The Cabinet Committee on Economic Affairs (CCEA) has allowed HDFC Bank to raise up to Rs 24,000 crore in foreign direct investment (FDI), without breaching the 74% FDI limit set for private-sector banks, interim finance minister Piyush Goyal said on Wednesday. The FDI level in HDFC Bank currently stands at 72.62%.
Analysts said if the entire amount is raised, the bank’s capital adequacy ratio could rise by 250-300 basis points from 14.8% as of March 2018.
While FDI up to 49% is allowed in private banks through automatic route, any such investment beyond this ceiling (and up to 74%) requires the government’s approval. In public sector banks, however, FDI up to only 20% is allowed, that, too, through government approval.
The approved amount of Rs 24,000 crore for HDFC Bank is including “premium, over and above the previous approved limit of Rs 10,000 crore, such that the composite foreign shareholding in the bank shall not exceed 74% of the enhanced paid-up equity share capital of the bank”, the finance ministry said in a statement.
According to the consolidated FDI policy, the 74% FDI limit for private banks includes investment under the portfolio investment scheme by FIIs/FPIs and NRIs. Analysts said the foreign investment in HDFC Bank comprises FII holding of 49% and FDI of 25%.
In December last year, HDFC Bank announced that its board had approved a plan to raise up to Rs 24,000 crore through a mix of instruments. As much as `8,500 crore would be allotted to HDFC on a preferential basis, while the rest would be through issuance of shares, convertible securities, depository receipts pursuant to a qualified institutional placement/American Depository Receipts/Global Depository Receipts, the bank had said.
The government had in 2015 allowed HDFC Bank to raise Rs 10,000 crore from foreign investors.
HDFC Bank’s net profit in the January-March period rose 20% on the back of stable asset quality, although the second-largest private lender also saw its loan growth fall to a five-quarter low. Its gross non-performing assets ratio was at 1.3% in the quarter, which is among the best in the industry.