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RBI retains voting cap for foreign investors

The Reserve Bank of India has retained the ceiling on foreign investors' voting rights in private banks at 10 per cent of total voting shares despite more than doubling the limit on foreign direct investment.

The RBI on Saturday raised the ceiling on foreign direct investment in private banks to 49 per cent from 20 per cent, but limited the extent of management control by retaining the cap on voting rights.

"No person holding shares shall exercise voting rights on poll in excess of ten percent of total voting rights of all shareholders," said the guidelines posted on the central bank Web site, www.rbi.org.in, at the weekend, referring to the voting rights of foreign investors.

The ceiling may deter global banking giants from making acquisitions, analysts said.

"Management control will be a key issue, and foreign banks are likely to be a bit cautious," said Puneet Srivastava, banking analyst at Enam Securities.

But shares of private Indian banks leapt by as much as 10 to 20 per cent in early deals on Monday after the central bank announcement of the increase in the FDI limit, which analysts said could prove to be a lifeline for some banks.

Banking stocks had already risen sharply the previous two weeks on speculation that the government would make this announcement in its Union Budget on February 28.

Private Vysya Bank, in which Dutch group ING's Bank Brussels Lambert holds a 20 per cent stake, rose by the maximum permissible 20 per cent to Rs 229.70 but retraced to Rs 215 in early afternoon deals.

ICICI Bank, India's largest private bank, surged 9.99 per cent to Rs 139.75 in early trade but later retraced to quote at Rs 131.50.

Other private banks such as Centurion Bank, IndusInd Bank, Global Trust Bank, South Indian Bank and Karur Vysya Bank also jumped in early trade.

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