Unless more holistic changes are made in PSU banks, just raising the cap for FDI will not result in a rush of capital into them, said Munish Dayal, Senior Partner, Baring Private Equity Partners India.
India’s banking landscape could undergo a massive overhaul — CNBC-TV18 learns that the government is considering a proposal to allow 100% foreign direct investment (FDI) in private banks – and is also mulling a hike in FDI cap from 20 percent to 49 percent for public sector lenders as well.
To discuss if this development could meaningful change the outlook for the banking sector, CNBC-TV18 spoke to Munish Dayal, Senior Partner, Baring Private Equity Partners India.
Any opening of the sector was overdue and would be good, says Dayal, adding that it was earlier proposed in 2015 but did not go through. Moreover government going forward with its reform agenda is opening up sectors like aviation, retail, and now banking, which is a step in the right direction, says Dayal.
According to him, even if the government may increase the limit of foreign capital to 49 percent in public sector banks, it is not necessary that foreign capital will come rushing into these banks.
“This step in no way suggests, privatization of PSU banks, nor is it suggesting raising cap of 10 percent holding per foreign holder and nor does it suggest that by raising foreign capital, the holder will have the ability to be on board, or change management, governance structure,” says Dayal.
Therefore, unless more holistic changes are made in PSU banks, just raising the cap for FDI will not result in a rush of capital into them, says Dayal.
With regards to private sector banks, the only bank hovering near the limit is HDFC Bank, says Dayal, adding that others are much below the existing 74 percent limit.