Private banks buoyant on talks of hike in FDI limits

The banking sector is buzzing and single-handedly pushing the benchmark indices to new highs. The gain in banking stocks can be attributed to the anticipation that government may increase the FDI limits for banks.

As pre-Union budget discussions are on between the government and various stakeholders of the economy, there is a buzz in the media that government is looking at ease FDI limit for private banks. Currently, 74% FDI is allowed in private sector bank, which might be increased to 100 per cent to stimulate the growth of the economy by increasing lending to businesses.

Under the prevalent policy, the government has allowed a total of 75 per cent FDI in private banks. Foreign investment of up to 49 per cent is allowed under the automatic route, while between 49 to 74 per cent is allowed after seeking government’s permission. The Reserve Bank of India (RBI) has opposed this move due to regulatory issues but the government seems to have a view that FDI is about investment and not about ownership.

Despite stiff resistance from worker unions, the government may also look to increase FDI limits in public sector banks to 49 per cent, which is currently at 20 per cent.

Meanwhile, bank stocks were trading higher on the bourses. Yes Bank was trading at Rs. 353.95 per share, up by 3.34 per cent, HDFC was at Rs. 1,909.60 per share, up by 2.67 %, while HDFC Bank was at Rs. 1,940.20 per share, up by 2.60 per cent, IndusInd Bank was at Rs. 1,695.90, up 2.35 per cent. Other banks including Axis Bank, SBI, ICICI Bank was trading up by more than one per cent at 10:13 hours on Thursday.