By Rajesh Roy And Shefali Anand
NEW DELHI--India's Foreign Investment Promotion Board allowed
HDFC Bank Ltd. to raise its foreign investment cap Friday to 74%,
according to a senior official in India's finance ministry.
However, because the FIPB, which approves foreign investment
proposals in India, considers a 22.5% stake held by HDFC Bank's
founding group, including home loan-provider Housing Development
Finance Corp. Ltd., as a foreign investment, the bank's current
foreign investment is considered already close to the new cap--at
73.3%.
The private sector bank is a favorite of international investors
for its consistent earnings growth and lower nonperforming loans
compared with peers. The stock has risen nearly 40% this year,
while the broader S&P BSE Sensex is up 32%.
An HDFC Bank spokesman didn't immediately comment on the FIPB
decision.
Indian banks can have up to 49%-foreign investment without
regulatory approval, but need approval from the Reserve Bank of
India and the FIPB if they want to increase the foreign investment
limit to 74%.
Earlier this year, HDFC Bank--one of India's largest banks--had
approached the FIPB to raise its foreign investment limit beyond
49%. The bank contended that its founder HDFC Ltd. should be
considered an Indian investor because it is a homegrown
company.
Last year, the RBI had banned fresh sales in HDFC Bank shares to
overseas investors, after its foreign investment cap had hit 49% of
paid-up capital. Following this, MSCI Inc. lowered the weight of
HDFC Bank shares in its India index, a global benchmark for fund
managers.
Nupur Acharya contributed to this article.
Write to Rajesh Roy at rajesh.roy@wsj.com and Shefali Anand at
shefali.anand@wsj.com