The Cabinet Committee on Economic Affairs (CCEA) on Thursday hiked the foreign ownership limit in Axis Bank to 62 percent from an earlier cap of 49 percent.
As per the current share price, the move could result in a capital inflow of Rs 7,250 crore, the CCEA said.
This follows the Foreign Investment Promotion Board’s approval in September this year that allowed the foreign-equity limit to be raised.
Also read: Axis Bank, HCL Tech gain post FIPB raises FDI limit
The CCEA, however, added that the maximum allowed foreign institutional (FII) stake in the bank will remain capped at 49 percent.
However, considering the underlying sub-limit of 49 per cent that still exists, the extra 13 per cent stake allowed by the CCEA may not be directly there for the taking for foreign investors, as the Reserve Bank of India had recently said the 49 percent limit had already been breached.
One way for FIIs to own a greater stake in Axis Bank would be if they convert some of their Indian shares into global depositary receipts (GDRs).
According to September quarter data, about 4.54 percent stake in the bank was held in the form of GDRs, and as they are not included as part of the FII limit, there is still 6.46 percent that could be held as GDRs till they reach their individual cap of 11 percent.
At current market prices, a 6.46 percent stake sale could result in about Rs 4,000 crore in the form of FII inflow.
However, for FIIs to want to convert their Indian shares into GDRs, they will likely need to trade at a premium to the Indian prices, which currently they do not.
Another option would be if private-equity players or sovereign funds pick up stake via a preferential issue or if Axis Bank were to raise funds via a follow-on GDR issue on the London Stock Exchange. Axis Bank currently plans to pursue neither of these options, it is learnt.
This may also mean that there is still little room for the government to divest the stake it holds through the Special Undertaking of Unit Trust of India (SUUTI), as life insurer LIC already has 9.33 percent in the bank -- close to the 10 percent allowed -- and FIIs, despite today’s development, still continue to have little headroom to absorb further paper.
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