The Government has expressed its unwillingness to increase the foreign investment limit in banks, in spite of representations from public sector banks to raise the 20% ceiling. According to analysts, checking the foreign institutional limit helps attract investors.

Most banks are close to the investment limit by foreign institutional investors (FIIs) and have put their case forward for a hike in the FII investment to the Reserve Bank of India.

Allahabad Bank, Andhra Bank, Bank of Baroda, Punjab National Bank and Union Bank of India are already touching the FII investment ceiling, while Centurion Bank of Punjab, Development Credit Bank, Federal Bank, HDFC Bank, Axis Bank and YES Bank hold close to 15% FII, which is being scrutinized.

The RBI has debarred any further investment by FIIs in public sector banks where the limit has already been reached. RBI norms permit 20% of the paid-up capital of a public sector bank to a foreign institutional investor and 49% in private sector banks.

Furthermore, NRI investments, foreign direct investments and foreign institutional investments together must not exceed 74% of a private bank’s paid-up capital, and any individual foreign investment must be limited to 10% of the bank’s paid-up capital, as per RBI guidelines.

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