India's FIPB Raises Foreign Investment Cap for HDFC Bank

By Rajesh Roy And Shefali Anand 

NEW DELHI--India's Foreign Investment Promotion Board allowed HDFC Bank Ltd. to raise its foreign investment cap Friday to 74%, according to a senior official in India's finance ministry.

However, because the FIPB, which approves foreign investment proposals in India, considers a 22.5% stake held by HDFC Bank's founding group, including home loan-provider Housing Development Finance Corp. Ltd., as a foreign investment, the bank's current foreign investment is considered already close to the new cap--at 73.3%.

The private sector bank is a favorite of international investors for its consistent earnings growth and lower nonperforming loans compared with peers. The stock has risen nearly 40% this year, while the broader S&P BSE Sensex is up 32%.

An HDFC Bank spokesman didn't immediately comment on the FIPB decision.

Indian banks can have up to 49%-foreign investment without regulatory approval, but need approval from the Reserve Bank of India and the FIPB if they want to increase the foreign investment limit to 74%.

Earlier this year, HDFC Bank--one of India's largest banks--had approached the FIPB to raise its foreign investment limit beyond 49%. The bank contended that its founder HDFC Ltd. should be considered an Indian investor because it is a homegrown company.

Last year, the RBI had banned fresh sales in HDFC Bank shares to overseas investors, after its foreign investment cap had hit 49% of paid-up capital. Following this, MSCI Inc. lowered the weight of HDFC Bank shares in its India index, a global benchmark for fund managers.

Nupur Acharya contributed to this article.

Write to Rajesh Roy at [e-mail] and Shefali Anand at [e-mail]