Why HDFC Bank Stands To Gain From Real-Time Reporting Of Foreign Holding

New rules to monitor foreign holding in Indian banks could open a headroom for an investment worth about Rs 9,000 crore in HDFC Bank Ltd., India’s most valued lender.

Starting May 18, foreign institutional holding in banks will be monitored in real time as per a new framework announced by the Securities and Exchange Board of India in consultation with the Reserve Bank of India. The decision was made last month.

The system provides for real-time updates of foreign holding and red-flags if it comes within 3 percent of the 74 percent cap. The new directive asks depositories to put in place the necessary infrastructure to monitor the foreign holding, and report the data to exchanges.

Previously, foreign holding in banks had to fall below 72 percent before fresh investments would be allowed, according to the RBI’s rules. The new system does away with the 2 percent buffer.

The foreign holding in HDFC Bank was 72.22 percent as of March 31., as per its website. Under the new system, foreign investors can ramp that up to 74 percent, providing a headroom of 1.78 percent stake or nearly 46 million shares. At current market prices, this translates into Rs 9,000 crore.