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Is The Chinese Central Bank Stake In HDFC Such A Big Deal?

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Slowly and gradually, investors, analysts and even politicians are beginning to question the more than 1 per cent shareholding that People's Bank of China (PBOC) has picked in HDFC. However, Foreign Portfolio Investors have always been investing huge sums in Indian institutions, particularly the financial institutions. Now, the question here is that of a foreign government owned entity, like in the case of People's Bank of China picking a stake. However, government owned entities of other countries have always been recognized as Foreign Institutional Investors and they own significant stakes in Indian Banks and institutions.

 

Take the case of ICICI Bank. The second biggest Foreign Portfolio Investor (FPI) is the Government of Singapore, where the stake is more than 2 per cent, as per data provided for Dec 31, 2019. Similarly, the Abu Dhabi Investment Authority is a sovereign wealth fund owned by the Government of Abu Dhabi.

Let's take a look at the shareholding pattern of FPIs in ICICI Bank.

Foreign Portfolio Investors owned 45.79 per cent of the total number of shares of ICICI Bank

NAME OF THE INVESTOR

% holding

Dodge and Cox International Stock Fund

4.11%

Government of Singapore

2.09%

Abu Dhabi Investment Authority 1.07%

Similar, is the case with HDFC and HDFC Bank. These banks and institutions, particularly HDFC is a Foreign Portfolio Investors darling and is constantly lapped-up by FPIs.

Foreign Portfolio Investors Own 37.92% of the total number of shares of HDFC Bank. Take a look at the major FPI shareholders of HDFC Bank

NAME OF THE INVESTOR

% holding

Euro Pacific Growth Fund

4.76%

Government of Singapore 1.27%

Will it be wrong to pick-on PBOC

Going purely by the books, if other Sovereign Wealth Funds can pick a stake in banks and institutions, than a case has also to be made for PBOC, since the rules are the same. In fact, FPIs own a staggering 72 per cent stake in HDFC as on Dec 31, 2019 and hence a 1 per cent stake by PBOC is not a very big deal.

In any case, the way the stock of HDFC may have been hammered down, it may have made sense to invest.

Normally, there would be no need to be hysterical over this, but a central bank picking a stake in a major bluechip commercial institution is unusual and may have hence raised eyebrows. Maybe, there should have been some alarm raised as the stake was gradually being increased.

 

Who controls FPI Investments?

Foreign Portfolio Investors, Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the Portfolio Investment Scheme (PIS). The Reserve Bank of India monitors the shareholding pattern on a daily basis.

Under the Portfolio Investment Scheme, FPIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

The ceiling of FPI investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the general body of the company passing a resolution to that effect. When limits have been breached the RBI is quick to issue a release mentioning that the limits have been breached.

Is The Chinese Central Bank Stake In HDFC Such A Big Deal?

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