Ashish Bhalla’s Take on Increase in FDI Limit

Ashish Bhalla analyses how the FDI or Foreign Direct Investment is going to benefit the private sector banks in the coming months. The government is deciding to increase the rate of FDI which is surely going to prove advantageous to private banking sector. At present, the rate is 74% and the current government is in constant talks to take the percentage higher to 100%, and also to increase the limit of 20% of state run banks to around 49%. Ashish Bhalla says that the foreign investment incorporates overseas portfolio investment along with foreign direct investment via different ways.

Ashish Bhalla explains clearly how the rise in FDI limit can benefit different sectors. For instance, the banking sector weightage as per the MSCI index would gradually increase with respect to increasing foreign investment headroom. In addition to this, he says that one of the largest beneficiaries would be HDFC bank as the foreign holding is near the limit of 74%. Some other banks from public sector that will remain important beneficiaries include Bank of Baroda, Punjab National Bank, and also State Bank of India. In addition to this, Ashish Bhalla analyses that the hike will also trigger acquisitions of banks to a certain extent.

The government of India is also working towards easing out the standards for investing in construction sectors, single brand, and also in power exchanges. It is also easing out the FDI policy with respect to audit firms and also medical devices in relation to the companies that receive funds from overseas. Moreover, with the FDI policy, there are differences between varied foreign capital sources too. This proves significant as it relaxes the funds tapping from the investors in other countries. He adds, there will also be improvement in the flexibility aspects of different capital raising alternatives.

When the new FDI policy will come into existence, the foreign airlines are supposed to invest based on the government rules and with the Indian companies, the ones which offer non scheduled as well as scheduled transport services. Ashish Bhalla says that, this means that certain restrictions imposed will eventually be vanished away. One condition was that the investments cannot exceed the restricted limit of 49%, it cannot be direct nor indirect. In addition to this, Ashish Bhalla noted that the control and ownership will stay with Indian national only.

Furthermore, he explains that high foreign direct investment will prove to be important when the requirement for capital will rise. This is because banks will have to move to adequacy requirements of Basel III capital, along with other accounting standards too. Talking about the brokerage, Ashish Bhalla says that there will be no materialistic changes for the state-run banks, and it can happen only when the government will be successful with the long term investments. Ashish Bhalla also noticed that RBI this time was comfort, as initially it was hesitant regarding this matter and it even rejected the policy that was initiated in the year 2015. There will be more updates from Ashish Bhalla based on FDI very soon.