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Why Is The FIPB Rejecting or Deferring Proposals Like Sharekhan Stake Sale, and Kotak Bank FII Limit Raise?


There’s been a strange situation at the FIPB (Foreign Investment Promotion Board). In the recent  meeting in April, they approved a few FDI proposals (where approval is required). But many seemingly okay proposals have been rejected or deferred.

Sharekhan – a leading brokerage in India – has been on the block and it seems, has a potential valuation of over Rs. 3,000 cr. This has been acquired by its managers, along with other institutions, and now foreign financial companies were looking to buy in. Specifically, Baring PE was looking to buy Sharekhan’s stake, according to VC Circle; but the FIPB decided to reject this transaction. This is very strange, because it’s not like Sharekhan was some kind of prized asset of the country that should be protected from foreigners. If it was something else like “valuation was too low” then my take is that the government shouldn’t be bothered – a company like IDFC is well versed enough to understand what price it can sell at. There is simply no reason to reject such transactions – and if there is, we should be seeing a very detailed documenting why such a decision was taken at all. (And please, I would request this of any government, so lets not get all political)

Reliance Capital’s Alternative Investment Fund (AIF) wanted to raise funds from NRIs to invest in Indian assets. This was only to the tune of (the higher of) 15% of their corpus or 150 cr. , through the banking channels. Even this has been rejected! It’s strange, because technically AIFs should be able to raise money from abroad, and then only investing 15% of their corpus, and that too from NRIs – to reject that indicates a serious control issue, doesn’t it?

Kotak Bank wanted to raise its FII limit to 55%. This should always be summarily accepted – after all, every other bank seems to have a higher limit. But for no reason given, it was “deferred”. Why delay what you will anyway have to agree with? No wonder HDFC Bank was miffed that it got delayed on its fund raise.

Also deferred were Knowlarity’s application to raise VC funds from foreign investors upto 80% of its ownership, and an application by Zodius advisors, a VC fund which is a Cat-1 AIF, for getting money from NRIs.  This is again strange, and seems unnecessary.

The typical answer we get when we ask why is: Why do you think you know better than the government? But as it’s been shown time and time again, such questions make people uncomfortable because there is no real answer. That it’s just a display of power, and sometimes, rent seeking. Our authorities need to be far more accountable.

More importantly, if we want to encourage foreign investment, how can we have such deferrals and rejections? For what seems to be very simple proposals, the government approval should not even be required. (In fact, other than something that pertains to national security, there’s no reason to prevent such investment). At this point, it just seems like we have a bunch of heavy bouncers standing on the doors of Indian finance, letting in only the foreigners they like or know.


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