THE FINANCE MINISTER, Mr P. Chidambaram, is open to foreign banks acquiring 10 per cent share every year for three-four years that would enable them get majority stake in Indian private banks and is ready to facilitate the move by scrapping the 10 per cent limit on voting rights. The policy tilt in favour of foreign banks tries to undo extant rules that limit their equity acquisition in Indian private banks, directly or indirectly, to 5 per cent. Foreign banks can operate through one of three channels — foreign branches; wholly-owned subsidiaries or a subsidiary with aggregate foreign investment up to 74 per cent. Incidentally, these rules were laid down by New Delhi and not the Reserve Bank of India. Why should the same concession not be extended to other Indian private banks, public sector banks or for that matter Indian corporates, none of which can acquire more than 5 per cent stake sans the RBI approval?

Recently, ICICI Bank told the public it would be lowering its stake in Federal Bank to 5 per cent from 20 per cent over three years to abide by the RBI writ. But any foreign bank is free to pick up 10 per cent stake every year for three-four years in ICICI Bank, when this Indian entity has been doing well with its shares quoted in New York and Indian bourses. HSBC, which holds 14.5 per cent stake in UTI Bank, can go ahead and own it. If the Finance Minister's move gets the Parliament nod, will the foreign banks not trigger the SEBI ruling that makes open offers mandatory when the stake build-up touches 15 per cent? The track record of most Indian private banks is not envious and a few, such as Nedungadi Bank and Global Trust Bank, had to be rescued by merger with government banks. Foreign banks have been strong players in the forex and financial markets but most of them have been allergic to priority sector lending and other social obligations set by the RBI. Quite a few have been trying to pull out of the RBI's Corporate Debt Restructuring scheme that aims to rework loans to sick units. Most important, the current regulatory regime is in line with international practices, going by a speech of the former RBI Deputy Governor, Dr Rakesh Mohan. Foreign regimes set limits on the quantum of ownership by a single person or a group, non-bank financial firms, non-financial entities, other banks and foreign entities. Then, why the unnatural advantage for foreign banks operating in India?

The Finance Minister is keen on dollars flowing into Indian private banks to enhance their capital base. But this can well be done by aiding domestic consolidation. There is a view that the RBI has been overly stringent by slapping a limit of 5 per cent on equity stakes in private banks leading to fragmented and not diversified ownership. Nothing can stop a clever bidder from picking up in various ways parcels of stakes less than 5 per cent in Indian private banks to run their boards, right under the nose of the RBI. The central bank cannot shirk the charge of being needlessly inquisitive over the quality of stakeholders in private banks and also be silent on the dominant 51 per cent government holding in public sector banks. But that cannot justify the spell of fascination for foreign banks in New Delhi.

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