The Cabinet Committee on Economic Affairs, or CCEA, yesterday permitted Axis Bank to increase its foreign investment limit to 62%. It was earlier capped at 49%. Any proposal involving foreign direct investment, or FDI, above Rs 1,200 crore is cleared by CCEA.
Axis Bank, the third largest private lender in India, had sought a raising of the foreign equity limit since the RBI bans fresh purchases by foreign investors on reaching the limit of 49%.
HDFC Bank – the country’s second largest private sector lender – applied to the Foreign Investment Promotion Board, or FIPB, for a rise in foreign investment in its equity to 74%. The board should take up HDFC Bank’s proposal to increase FDI in its meeting next week. A few months ago, Federal Bank obtained approval for the same.
Foreign shareholding in private sector banks is automatically permitted up to 49%. For increasing it to 74% of the paid-up voting equity capital, which is the highest limit, approval is mandatory.
Our equity analyst recommends that investors continue building exposure to Axis Bank. She believes that the shares are attractively priced and is confident about the bank performing on its retail strategy. To read Suruchi Jain's analysis of Axis Bank, click here.
She is also of the opinion that HDFC Bank is the best-in-class of all Indian banks under Morningstar's coverage. She recently raised HDFC Bank’s fair value estimate by 9% to Rs 722.36 per share. To read Suruchi's analysis of HDFC Bank, click here.