Date:19/08/2005 URL: http://www.thehindubusinessline.com/2005/08/19/stories/2005081903140100.htm

Back Mauritius firm told to cut stake in Centurion to 10 pc — RBI sets 90-day deadline to recast holding

Ambarish Mukherjee

New Delhi , Aug. 18

THE Reserve Bank of India has asked the Foreign Investment Promotion Board (FIPB) to direct Mauritius-based investment firm Kephinance Investment (Mauritius) Pte Ltd to bring down its stake in Centurion Bank Ltd to the prescribed limit of 10 per cent.

The RBI has said that the restructuring of the holding by the Mauritius-based firm would have to be completed within a period of 90 days, officials said.

Kephinance now holds 14.45 per cent stake in the bank. According to the existing banking regulations, no single foreign shareholder is permitted to hold more than 10 per cent stake in the company.

Kephinance is a SEBI registered FII sub-account holder.

The firm holds 4.75 per cent stake in the bank as foreign institutional investor.

It further holds another 9.7 per cent stake in the bank in the form of foreign direct investment.

Together, the holding is much more than the permissible 10 per cent limit.

According to official sources, the fact that a SEBI registered sub-account holder has direct investment in the form of FDI in the bank's equity itself is a violation of the existing legal provisions.

"Kephinance, itself being a SEBI registered sub-account holder, investing under FDI route is a violation of SEBI (FII) Regulations," officials said. They added that the market regulator has the power to either condone the violation or take action.

But, as far as the RBI guidelines are concerned, the foreign investor cannot exceed 10 per cent of the total holding, they said.

The issue came to light recently following Kephinance's application to the FIPB seeking redesignation of the 4.75 per cent stake held by it through the FII route as portfolio investment into foreign direct investment.

The Mauritius-based firm is being asked to bring down its holding to the permissible limit of 10 per cent and is being given a time of three months to complete the process, officials said.