Kotak Mahindra Bank gets FIPB nod for 55% foreign shareholding

The Foreign Investment Promotion Board (FIPB) on Friday cleared a proposal by Kotak Mahindra Bank to increase the foreign investment limit in the lender to 55 per cent, from 49 per cent.

FIPB's approval came after a clarification from the department of financial services (DFS) that this would not necessarily lead to problems for the bank's plan to raise the foreign investment limit in Kotak Mahindra Old Mutual Life Insurance.

Kotak Mahindra Bank approached the board after the Reserve Bank of India (RBI) barred overseas investments in it as the bank had exhausted the permissible threshold for foreign shareholding following the merger of ING Vysya Bank.

Investments from FIIs, FPIs (foreign portfolio investors) and foreign banks had reached 48.55 per cent in the merged entity.

The clearance comes days after Kotak Mahindra Bank's shareholders gave approval for issuance of bonus shares.

The annual general meeting of the bank held on 29 June had approved issuance of "bonus shares in the proportion of one equity share for every equity share of face value Rs5 held by such person on the record date".

FIPB, headed by finance secretary Rajiv Mehrishi, had earlier deferred a decision on the proposal for want of clarity on the status of Kotak Mahindra's insurance joint venture with Old Mutual.

When the government raised the foreign investment (FPI / FDI) limit in insurance from 26 per cent to 49 per cent in March, it was stipulated that the insurance ventures in the country should remain ''Indian owned and controlled''.

There was doubt on the applicability of the investment limit when given that the parent companies, like in the case of HDFC, are majority foreign-owned.