'FOREIGN' tag‎ for ICICI Bank and HDFC Bank

Banking majors HDFC Bank, ICICI Bank and Yes Bank are synonymous with Indian banking except that they are no longer considered Indian!

The commerce ministry on Monday said that it intends to stick to recent changes made to the FDI policy and not make any exceptions. The ministry suggested that banks will also be subject to the rule which says that any company with foreign holding more than 50 per cent will be deemed a "foreign entity."

"As far as the ownership and control are concerned, that has been defined with clarity, calculation of the FDI is also much simpler. The policy has worked well," said Union Commerce and Industry Minister Anand Sharma.

The changes made to the FDI policy last year say: "For a company to be treated as Indian, foreign investments, including ADRs, GDRs, FCCBs, convertible preference shares and NRI holdings, should remain below 50 per cent."

Going by that definition, the other five banks which are likely to get impacted by this are Yes Bank, IndusInd Bank, Federal Bank, ING Vysya and Development Credit Bank.

As foreign entities, these banks may face restrictions on investments in their insurance subsidies and also potentially face a limit on future branch expansion plans.

It is this fear that has left the chiefs of the country's top banks worried even as they continue to argue that they remain "Indian banks."

"Our management continues to be Indian. We continue to remain as a bank of Indian origin. Beyond that the classification of shareholding does not really impact our day-to-day performance," ICICI Bank managing director and chief executive Chanda Kochhar said in Mumbai on Monday.

"We, in any case, do not invest in equity shares of other companies in a big way. So in that sense, it does not really change life for us," Kochhar explained.

The second largest private sector lender HDFC Bank's managing director Aditya Puri also echoed a similar view, saying the FDI policy does not create any issue for the bank and that the bank continues to be an Indian lender with voting rights resting with Indians.

"Voting rights are with Indians. There is no issue as such. The fact is that we are an Indian bank and the voting rights are with Indians. Then how can you say we are a foreign bank," Puri quipped.

The RBI and the commerce ministry have been in discussion over the changes in FDI norms and how banks are expected to deal with them.

With the commerce ministry suggesting that IT is not willing to budge, it may now be up to the RBI to offer some clarity on how banks should adjust to the new regulations without impacting the growth potential of their domestic operations.