RBI expresses reservation over 100% FDI in private banks

The Reserve Bank has raised reservations over a proposal to allow 100% foreign direct investment in private banks as it might create regulatory problems.

According to sources, the central bank is of the view that 100% FDI may complicate regulations for private and foreign banks.

The proposal to hike FDI limit in private sector banks was recently discussed at a meeting of officials from the ministries of Finance, Commerce and Industy and RBI.

According to sources, RBI has expressed certain reservations over the proposal.

"RBI is studying the proposal along with the Finance Ministry and the DIPP. Final decision on the matter is likely to come in a month's time," the source said.

At present, the regulations for for expansion, priority sector lending, shareholding pattern are different for private and foreign banks.

Currently, 74% FDI is permitted in private sector banking, of which up to 49% is allowed under the automatic route and beyond that through the approval of the Foreign Investment Promotion Board (FIPB).

However, portfolio investments in the banking sector can go up to 49%.

The proposal to hike the FDI limit would help the existing private sector banks, payments banks and small finance banks tap overseas markets to enhance their capital base. RBI has recently given in-principle approval to 11 entities to set up payments banks and to 10 entities for small banks.

Foreign direct investment into the country grew 31% to $9.50 billion during April-June this fiscal.