ICICI Bank''s FDI likely To Fly

The decision by the Foreign Investment Promotion Board to recommend the approval of 24% foreign holding in an ICICI Bank subsidiary for its insurance and asset management businesses is likely to take off in the face of the investment rules laid down. The limit on foreign shareholding in an insurance business is 26 per cent, but since ICICI Bank itself is 74 per cent owned by foreign interests, the effective (or beneficial) non-Indian interest in the insurance business will be way above the permissible limit if additional foreign investment is allowed through the subsidiary. This special dispensation for ICICI Bank is being proposed at a time when several other promoters of Indian insurance firms are patiently waiting for the law to be changed before they bring in fresh capital. Indeed, even if the proposed amendment to the Insurance Act to raise the foreign holding limit to 49 per cent is put through (and nothing is lost if this gets done), the effective foreign holding in ICICI Bank''s insurance business will still be way above the new ceiling permitted. It is unfortunate that the government is seeking to permit something by administrative fiat because it cannot change the relevant law at this juncture. It was on firmer ground when it raised the foreign investment limit in the telecommunications sector from 49 to 74 per cent as that did not need changing the law. The logic of that change was to put an end to the pyramiding of holding structures, to recognise what had already happened in the marketplace, and to cap the beneficial interest owned by shareholders; the ICICI Bank decision flies in the opposite direction, creates a new precedent, and therefore a new set of problems.

There is an urgent need to overhaul the entire regime governing foreign direct investment so as to make it simpler and more transparent.