Thursday, October 30, 2008

India: FDI stake in credit info firms may be hiked to 49%

Anindita Dey / Business Standard /Mumbai October 28, 2008

The Reserve Bank of India (RBI) may hike the single-entity holding limit under the foreign direct investment (FDI) route in credit information companies (CICs) to 49 per cent.

The review in the single-entity holding follows a government direction to RBI as the FDI norms under the Press Note 1, 2008, and the subsequent RBI notification differ on single-entity foreign holding in such companies. The government wants a reconciliation of the two different guidelines on the same issue.

CICs are involved in the task of collection, processing and sharing of credit information of borrowers. Credit Information Bureau of India (Cibil) is the first company to begin operations in the country.

While RBI wants the single-entity foreign holding under both FDI and FII (the portfolio investment route) to be capped at 10 per cent, the government notification specifies a cap of 10 per cent only for the single-entity FII holding and no such limits for a single holding under FDI. FII, or foreign institutional investment, otherwise known as portfolio investment, is usually done by picking up shares of a company in the secondary market.

RBI has been opposing a further relaxation of the single-entity holding under the FDI route to avoid a conflict of interest. Sources close to the development added that even if RBI has agreed in principle to hike the single-entity holding under the FDI route to 49 per cent as against 10 per cent, the central bank wants to impose certain conditions to avoid the conflict of interest involved in the commercial use of sensitive credit data.