The Telegraph
Since 1st March, 1999
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Bank recast plan nears D-Day

New Delhi, Jan. 15: Finance minister P. Chidambaram today said a banking reform roadmap, allowing foreign banks to buy up to 74 per cent equity in private domestic banks, was being 'fine-tuned' and will be announced early next week.

The minister made the announcement after a two-hour meeting with Reserve Bank governor Y.V. Reddy. 'The governor has come for this purpose. It is being fine-tuned. We are dotting the I's and crossing the t's,' he said.

Reddy later met economic affairs secretary Rakesh Mohan to finalise the fine print of the new policy.

The banking investment policy would be unveiled after it is approved by Prime Minister Manmohan Singh and the Cabinet, officials added.

At present, foreign banks are allowed to acquire up to 49 per cent equity in local private banks. In May last year, the government announced that the foreign direct investment (FDI) cap on banking would be raised to 74 per cent, but the guidelines had not been worked out as yet.

Officials said rules which allow up to 74 per cent FDI in private banks in India currently permit creeping acquisition of 10 per cent every year. However, these rules are likely to be modified and issued soon, which will be within the overall limit of 74 per cent, to allow for quicker and easier takeovers.

The rules will allow buyouts, subject to regulators' approval. The policy announcement is expected to pep up the stock market.

The government will, however, allow public sector banks to enter the fray to buy out private banks which they feel will add value to their network.

In several occasions, Chidambaram has openly favoured mergers and acquisitions by public sector banks to strengthen the state-run banking segment. The minister had said he wanted consolidation, as PSU banks would have to compete with foreign banks and entities and consequently needed to grow in size.

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