The Reserve Bank of India today notified that since the foreign shareholding in HDFC Bank has breached the 49 percent mark, no further purchase of shares of the bank will be allowed for FIIs.
The result of this RBI bar on further FII investment in HDFC Bank would ensure there is unavailability of headroom for FIIs to invest in the company. Moreover, it is also likely HDFC Bank will be dropped from the MSCI Indices, like Axis Bank which was dropped earlier this year, when its foreign holding limit hit the 49 percent mark on August 14.
The move follows on back of change in FDI guidelines earlier this year, which allowed foreign investors in private banks to invest up to 49 percent via automatic route, and from 49 percent to 74 percent via government approval.
HDFC Bank foreign holding was above the 49 percent market when the new guidelines were introduced. Over the last two quarters, foreign holding in HDFC Bank has slipped from over 51 percent to below 49 percent. Foreign holding in HDFC Bank included FIIs investments and ADRs listed in the US market.
Axis Bank is yet to get government approval for hike in foreign investment limit. Though the Foreign Investment Promotion Board (FIPB) has approved the limit on September 19, the final approval is still pending from the Cabinet Committee on Economic Affairs (CCEA).
The non-availability of foreign investment headroom in HDFC Bank, and the likelihood of it being dropped from MSCI will put pressure on the stock going forward.
ICICI Bank is another bank which could face a similar pressure if its foreign investment holding slips to 49 percent. Foreign investors held around 67 percent in form of domestic shares and ADRs in the bank.
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