India Simplifies Foreign Investment Rules, Banks To Benefit

<p>India has simplified rules for foreign investment in companies by clubbing together different categories, Finance Minister Arun Jaitley said on Thursday (16 July), effectively giving equal treatment to global capital entering Asia's third largest economy.<br><br>The move, flagged by Jaitley in his budget in February, will make it easier for banks like Yes Bank and Axis Bank to raise capital up to a foreign ownership limit of 74 percent, say analysts.<br><br>"One of the most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments," Jaitley told reporters after a cabinet meeting.<br><br>Jaitley said foreign direct investment, foreign portfolio investment and investments by non-resident Indians would be "clubbed together under a composite cap".<br><br>Banking stocks rose after the announcement. Axis Bank shares rose nearly 5 percent, while Yes Bank gained 3.6 per cent in a Mumbai market that was up 0.8 per cent.<br><br>Previously, foreign capital had been subject to varying restrictions - a legacy of India's socialist past and its lingering reluctance to allow capital to move freely across its borders.<br><br>The Department of Industrial Policy and Promotion (DIPP), part of the Commerce Ministry, proposed simplifying the investment rules after Prime Minister Narendra Modi won an election last year by pledging to boost investment and jobs.<br><br>For banks, the shift will lead to an increase in their effective free float - or the number of shares that can be easily traded. That in turn would lead to an increase in their weighting in benchmark indexes tracked by many fund investors.<br><br>India has also allowed 100 percent investment in pharmaceuticals and railway infrastructure under a so-called automatic route that does not require official approvals.<br><br>Sectoral foreign investment caps have been raised in the insurance and defence sectors to 49 percent. No major deals have yet been announced, however, reflecting a lack of clarity over how India treats different types of capital.<br><br>(Reuters)</p>