20 may 2000

government derails hsbc’s mutual fund plans
mumbai: with the government yet to give its approval on the proposed holding structure for its proposed asset management company, the hong kong and shanghai banking corporation’s (hsbc) plans to set up mutual fund operations in india have hit a road block.

hsbc had planned to invest $5m (approximately rs 22 crore) in the paid-up equity capital of the amc, which was to be 100 per cent owned by it. the investment was to be made by hsbc securities india holdings (hsih), the bank’s holding company in india set up to carry out hsbc’s non-banking-related businesses in india.

hsbc was still hopeful that it would be allowed to set up the amc under securities & exchange board of india (sebi) regulations as a 100 per cent-owned company of the holding company. but, no clarification had been forthcoming from the government on whether the norm of 25 per cent indian ownership for nbfc ventures with investment of less than $50m would be complied with, if the holding company setting up subsidiaries had a 25 per cent indian ownership.

if the government rules that the subsidiaries of hsih set up to pursue each of the businesses too need to have a 25 per cent local participation, hsbc would be forced to route its ownership in these ventures through fresh foreign direct investment from hsbc holdings. this would, however, leave the problem of excess capital at hsih unsolved.