A number of key recommendations of the Ratan Tata-headed Investment Commission aimed at doing away with restrictions in the Indian banking and financial services sectors, and equity markets may not materialise immediately, given that they go beyond the Reserve Bank of India's road map for FDI in the banking sector, as well as various statutes.
The commission, which submitted its report to Finance Minister P Chidambaram last month, had suggested permitting Indian corporates to own up to 15 per cent in Indian banks, increasing limits of holdings by any one foreign bank up to 15 per cent (for private banks), and equating voting rights to equity interest for foreign banks and Indian corporates.
It had also suggested allowing foreign banks operating in India to open branches up to a limit of 5 per cent market share of deposits, with the RBI specifying the additional capital requirement for each bank.
Sources said an attempt would be made to get around some of the policy impediments at a meeting to be chaired by Prime Minister Manmohan Singh shortly.
Following a meeting of the PM's Trade and Industry Council, the finance ministry had asked all concerned ministries to give their detailed inputs on the "doable" recommendations of the commission. Once finalised, the ministries would seek the Cabinet's approval for implementing the proposals.
On the suggestion to permit pension funds, provident funds and public charitable trusts to invest up to 10 per cent of their investible funds in listed securities that were AA rated or better, the finance ministry's revenue department said that expanding the scope of the permissible forms and modes of investment for charitable institutions was not permitted.
Sources pointed out that a recommendation on permitting FII investment of up to 49 per cent in public sector banks might not go ahead, given that the present rules limit it to 26 per cent, and any move on this front was likely to run into political problems with the Left parties and bank trade unions.
Another suggestion aimed at encouraging private equity by raising the 15 per cent limit for open offers to 25 per cent, and thereafter opening offers for all remaining shares was also unlikely to be accepted as the limits had been prescribed keeping investor interests in mind. Similarly, allowing private equity firms local and external borrowings might also not be found feasible.
Again, the suggestion to permit public charitable trusts to invest in fixed deposits of FAAA-rated companies (in addition to PSU FDs) would need a change in a special provision of the Indian Trusts Act, 1882, that required surplus money to be invested in the enumerated securities.
In fact, among the recommendations that have found favour is the one to prioritise certain industrial sectors as "national thrust areas."
The four specific sectors - tourism, power, textiles and agro-processing - have been selected on account of their tremendous potential to create jobs.
A number of other recommendations, including those aimed at facilitating urban infrastructure, corporatisation of state-level industrial development corporations, and creation of state-level investment boards to provide single-window clearances will have to be dealt with by states.
