The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved the proposal for grant of permission to HDFC Bank limited to raise additional share capital of up to a maximum of Rs 24,000 crore.
Currently, the FDI in the banks stands at 72.62 per cent.
The announcement was made by Finance Minister Piyush Goyal, who said with this additional FDI foreign equity in HDFC Bank would continue to remain within the mandatory cap of 74 per cent.
“Even with this infusion, the foreign equity will remain capped below 74 per cent. The current 72.62 percent foreign equity holding is being raised to 74 per cent with this Rs 24,000 crore FDI,” Goyal said.
The proposed investment is expected to strengthen the capital adequacy of HDFC which also is country’s second-largest private-sector bank by market value.
The new proposal also includes premium, over and above the previously approved limit of Rs 10,000 crore, such that the composite foreign shareholding in the Bank shall not exceed 74 percent of the enhanced paid-up equity share capital of the bank.
The government decision is aimed at both enabling the most valued lender raise additional funds for expansion purpose but also towards bolstering the overall financial health of Indian banking system. It’s worth mentioning that in recent times, profitability of Public sector Banks (PSBs) have been hit hard on account of mounting non-performing Assets (NPAs) – noting which, country’ central banker, RBI has asked for increased provisioning to be made on account of their such accumulated bad loans.