HDFC Bank gets Cabinet nod to raise Rs 24000 crore as FDI

The Union Cabinet chaired by the Prime Minister approved foreign direct investment (FDI) worth Rs 24,000 crore for HDFC Bank.

This includes the premium, over and above the previous approved limit of Rs. 10,000 crore, such that the composite foreign shareholding in the Bank shall not exceed 74% of the enhanced paid-up equity share capital of the bank.

With this raising of this capital, FDI in the HDFC bank would hit the regulatory ceiling of 74%.

It would also ensure that the composite foreign shareholding in the bank inclusive of all types of foreign investments, both direct and indirect, will not exceed 74% of the enhanced paid-up equity share capital of the bank.

The decision will be subject to Foreign Direct Investment Policy conditionalities and other sectoral regulations / guidelines.

Objective

The fund raising decision to allow the FDI in the bank which is the largest by any Indian company taken against the backdrop of strong growth in the bank’s balance sheet over the last two years and an expectation that credit demand will revive as the economy stabilises.

If the entire amount is raised, it would tentatively boost the bank's capital adequacy ratio, which was 14.8% as on March end, by another 2.5-3%.

Impact

The proposed investment is expected to strengthen the capital adequacy ratio of the bank.

Background

HDFC, the second largest private bank had earlier sought approval for maintaining the permissible FDI or foreign holding in the bank up to 74% of its total paid-up capital, out of which the FII (foreign institutional investors) sub-limit would be 49 percent and the balance 25 percent would be FDI.

Presently, HDFC has 72.62% FDI.