PSU Bank stocks to gap up on Monday ??

PSU Bank stocks to gap up on Monday ??

Panel wants FII cap in PSU banks doubled to 40%

By Partha Sinha/TNN

Mumbai: A government committee headed by the chief economic advisor Ashok Lahiri has suggested that the foreign institutional investment (FII) limit in public sector banks be doubled to 40%. However, the panel wants to continue with the current regulation which bars FII representation on the board of PSU banks.

The panel has also proposed to hike the FII investment limit in private sector banks to 100% from 74% at present. It has also proposed to increase the FII investment limits in sectors like broadcasting, cable network and direct-to-home services to 100% from 49% now. For the defence and strategic sectors, it has proposed a 49% cap on foreign investments, up from 26% at present.

However, the panel has favoured a continuation of the current policy of a complete ban on FII investments in the print media and terrestrial television. Set up by the BJP-led government in March 2002, and dubbed the Committee on Liberalisation of Foreign Institutional Investment, the panel was rec o n s t i t u t e d twice and submitted its report to the finance ministry recently.

The Lahiri committee has recommended that under normal circumstances, FII investment ceilings, if any, may be reckoned over and above the prescribed FDI sectoral caps. It also favoured scrapping of the Sebi regulation which requires each company to take special permission for raising FII investments over 24%.

Although it has proposed higher foreign holding in different sectors, to prevent concentration of holding among foreign entities, it favours continuation of the current rule which allows each FII to hold only up to 10% in a single company. In public sector banks, where a total cap of 20% for foreign holdings applies, FII investment up to 20% over and above the existing cap of 20% should be allowed, the report said. However, FIIs will have no representation on the boards of these banks. If necessary, the statutes may be amended for this purpose, the report noted. In sectors like print media and terrestrial TV, and also sectors currently out of the reach of the private sector, like gambling, betting and lotteries, the Lahiri committee favours non-participation of foreign investors.

For the retail trading sector, where foreign direct investment (FDI) is not allowed, but FII investment up to 24% is allowed, the panel favours a status quo. The committee recommends the same may continue as this would help in developing supply chains in a wide range of products, including that of agriculture, it noted.

Relating to the telecom sector, the Lahiri committees recommendations are in line with the recent budget proposal of a 74% foreign holding cap (FII and FDI stakes taken together) but says separate sub-ceilings should be done away with.

In defence production, considered a strategic sector for the country, the committee has proposed an FDI cap of 49% with no sub-ceilings. The existing limit is 26%. For the insurance sector, the panel has suggested a composite cap of 49%, up from 26% now and in line with the budget proposals.

The committee has recommended that this liberalisation be reviewed later for delinking portfolio investments from FDI ceilings.

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