Government sees ICICI, HDFC on same footing as PSU banks

The government has assured private sector lenders ICICI Bank and HDFC Bank that they will not be discriminated against vis-a-vis PSU banks even as their status has been changed to foreign-owned Indian-controlled lenders.

“In my view, neither ICICI Bank nor HDFC Bank, even though their equity is owned by foreigners, suffers from any handicap, because they are incorporated in India. They are on the same footing as other nationalised banks and we have nothing to worry about it,” Department of Industrial Policy and Promotion (DIPP) Secretary R.P. Singh said.

RBI does not distinguish between these banks and public sector banks, he said.

When contacted ICICI Bank spokesperson declined to comment on the issue.

Elaborating, Mr. Singh said, “Banking is allowed via two ways — either you open branches, in that case you don’t technically bring FDI, or you incorporate a bank in India, take a license from RBI and that particular bank gets equity from outside.”

In the second case, he added, the lender technically becomes a foreign bank. “But we call that a foreign bank only for the purpose of downstream investment, otherwise it’s an incorporated entity in India. It is on the same footing as other nationalised banks in terms of priority sector lending and branch expansion.”

Mr. Singh also said these banks should not worry about any complications in making downstream investments in the insurance and NBFC sectors.

“Insurance has been kept out of new (FDI) rules that changed the status of ICICI Bank and HDFC Bank (to foreign owned and Indian controlled) and 100 per cent FDI is permitted in NBFC, so there should be no problem,” Mr. Singh said.

He further said the department will come out with a paper on the financial sector in a month’s time that will address the worries of the sector regarding the new FDI rules.

FDI rules announced last year changed the criteria of calculating these investments and included ADRs, GDRs and convertible shares also in that category.

Going by these changed rules, ICICI and HDFC banks are lenders which are not owned by Indians, because around 74 per cent of their equities are from outside.

The FDI norms of 2009 also say that if indirect FDI in an Indian company exceeds 50 per cent, its investment in subsidiaries will also be treated as foreign investment.