New Delhi: The Indian ministry of finance has announced that the foreign direct investment (FDI) limit for private banks will be restricted to 74 per cent and not at a higher limit as was being contemplated due to the ambiguous announcement made by Finance Minister Jaswant Singh during his presentation of Budget 2003-04.

In his budget speech, Singh had said that the FDI limit for private banks will be raised to “at least 74 per cent.” Prior to this, the maximum permissible FDI limit in these banks stood at 49 per cent. “For the time being, the cap will be 74 per cent. A higher limit will not be permitted,” a top finance ministry official said.

But foreign interest in private banks can be 100 per cent of the paid-up capital, given the current level of investment allowed by foreign institutional investors (FIIs). Under the existing norms, which are still applicable, FIIs are allowed to hold 49 per cent over and above the FDI limit in banks. “The FII norms have not been touched. They remain as they were earlier,” the official said.

Thus, earlier, FDI and FII investment could total 98 per cent in a private bank with a maximum cap of 49 per cent in each of the segment. With the raising of the FDI cap and no change in FII norms, even the remaining 2-per cent holding can now be lapped up by foreign investors should a bank so desire.