Govt to review FDI norms in banking sector?

Stung by criticism of its new foreign direct investment (FDI) rules, the government may order a review of FDI norms in the banking sector. The move comes just a few days after banking regulator Reserve Bank of India (RBI) raised issues about the new FDI rules circumventing existing sectoral caps and ushering in capital account convertibility through the backdoor.

The government may also extend the review of FDI norms to other sectors as well. CNBC-TV18's Abhijit Neogy reports.

Also read: DIPP refuses FinMin's request to review new FDI norms

The government may order a review of the FDI rules in the banking sector and it might go for a comprehensive review of FDI rules across sectors. The trigger is the lack of clarity on the FDI status of certain banking majors including ICICI and HDFC Bank, ICICI Bank writing to the DIPP wanting to know what the FDI status is under the changed rules, the DIPP getting back saying that its really a foreign owned Indian company but that is not enough of clarity but what we are picking up is that this issue has now being examined, there will be inter-ministerial consultations held between the Department of Economic Affairs (DEA), the RBI and the DIPP and if there is a need, there will be a consensus and the FDI norms on the banking sector will be tweaked, if there are similar problems in other sectors, those sectors would also come for tweaking or modification of the existing FDI norms, those amendments may come on that note or even through the cabinet approval depending on the extent of the amendments because ministers will be involved and I don't expect this process to be over before the elections and this will only be over after the elections.

What is effectively going to happen is more clarity will be brought into the FDI process, the DEA and the RBI have already written letters to the DIPP raising several issues and one of them being is this capital account convertibility and that's the RBI contention and the DEA saying that its not comfortable with these norms and perhaps sectoral caps especially in sectors like insurance and defense.