The Telegraph
Since 1st March, 1999
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Stake boost for foreign banks
Month-end date for easier FDI norms

New Delhi, Dec. 5: The government today said the rules allowing foreign banks to acquire up to 74 per cent in private-sector peers will be in place by the month-end.

The government currently allows foreign banks to buy up to a 10 per cent stake in their private-sector counterparts annually over a period of three to four years within the 74 per cent foreign direct investment (FDI) cap.

Foreign institutional investors, who share this investment ceiling, are also allowed to buy into Indian private banks.

Once the new regulations come into force, foreign banks will be free to own a slice of equity in their private-sector counterparts but the deals will require clearance from regulators, finance minister P. Chidambaram said at a meeting of industry captains from 33 nations organised by the Confederation of Indian Industry and the World Economic Forum.

In a humourous aside, he said, ' but let me warn you, our PSU banks will give you a run for your money.'

Chidambaram also said a pension regulator would be in place by the year-end, a move which is likely to open up the sector to private investment.

The finance minister said the government was discussing insurance reforms and a relevant bill was expected early next year. His statement, which is being interpreted as a veiled reference to a hike in the foreign direct investment cap for the sector, came as a surprise to most business leaders present at the conference.

His earlier efforts to raise FDI levels in insurance firms to 49 per cent from 26 per cent had been blocked by Left parties.

The minister said the country was targeting an FDI inflow of $150 billion over 10 years through a series of innovative reforms.

'My priorities will remain infrastructure, including power, telecom, petroleum, air and sea ports, and the financial sector, which includes insurance, banking and pensions,' he said.

India, riding a crest of reforms, was likely to register a growth of 7-8 per cent, the finance minister said.

He also promised a third wave of reforms, which could see rural transformation mandated by the last elections, reaching out new jobs, better healthcare, basic education and civic amenities to rural India.

'This could unleash an explosive growth rate of 10-12 per cent annually,' Chidambaram said.

The economy grew 8.2 per cent in the last financial year. However, the growth this year is expected to be lower at 6-6.5 per cent.

India has, however, recorded one of the highest growth in foreign investments at $12.5 billion in the first six months of the current financial year, but it is far behind the $40-billion annual investment attracted by China.

'India is growing at a brisk pace and you must seize the opportunity,' Chidambaram urged domestic and foreign investors.

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