Governance rules in the banking system have indeed been changed to accommodate the private investor (domestic and foreign) after liberalisation.
Besides permitting the entry and consolidation of new private banks, the government (through the Ministry of Commerce) had as far back as March 5, 2004, announced a set of decisions with reference to foreign investment in the banking sector, which relaxed the cap on foreign equity in Indian banks to 20 % in the case of public sector banks and 74 % in the case of private banks.
Consequent to the Ministry of Commerce announcement, the Reserve Bank of India issued a more detailed and comprehensive set of policy guidelines on ownership of private banks.
In the interests of diversified ownership, the guidelines had declared -
- no single foreign entity or group could hold more than 10 %of equity
- 10 % limit set for individual FIIs and
- an aggregate of 24 % for all FIIs, with a provision that this can be raised to 49 % with the approval of the Board or General Body
- 5 % for individual NRI portfolio investors with an aggregate cap for NRIs of 10 per cent, which can be raised to 24 % with Board approval.
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