100 Percentage FDI in Private Banks on Cards

To increase foreign funds inflows into the country, the government is considering to relax investment norms by increasing foreign direct investment (FDI) limit to 100 per cent for private banks from existing 74 per cent.

According to a Commerce Ministry official, the Department of Industrial Policy and Promotion (DIPP) has sent a proposal to hike the FDI limit in the private banking industry to the Finance Ministry for its views.

At present, only 74 per cent FDI is permitted in the private sector banking, of which up to 49 per cent is allowed under the automatic route and beyond that through the approval of the Foreign Investment Promotion Board (FIPB).

The move will help the existing private sector banks, payments banks and small finance banks tap overseas markets to enhance their capital base.

Earlier, the Reserve Bank of India (RBI) granted in-principle approval to 11 entities to set up payments banks and 10 for small finance banks.

The government has also introduced the concept of composite caps where it removed separate caps for FDI and foreign portfolio investments (FPI) by replacing them with single upper limit in a bid to make foreign investments easier.  But given the sensitivities in the sector, the government has said foreign institutional investors (FIIs) cannot exceed the cap prescribed for portfolio investments in private sector banks. The limit of portfolio investment in banking is capped at 49 per cent

The government is taking several steps to boost FDI and has relaxed FDI norms for sectors such as medical devices, defence and construction activities. During April-June of this fiscal, FDI into the country grew 31 per cent to $9.50 billion.

Source: Indian Express

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