Centurion Bank and Vysya Bank will be the immediate beneficiaries of the relaxation of foreign direct investments in the banking sector.
The Budget has proposed to raise the cap from 49 per cent to 74 per cent for private sector banks.
Some of the foreign banks who were waiting in the fringes to have a stake in excess of 51 per cent in private sector banks will now be open to do so.
A stake of 74 per cent will help these banks to merge the balance sheet with the overseas balance sheet. Foreign banks led by Citibank, Standard Chartered Bank, ABN Amro and HSBC have already said they would be open to take over a local bank.
The finance minister said: "Foreign direct investment in the banking companies in India is presently capped at 49 per cent from all sources under the automatic route. For facilitating the setting up of subsidiaries by foreign banks as well as for inviting investment in private banks, this limit will be raised to at least 74 per cent."
Sabre Capital Worldwide, a global fund floated by former Standard Chartered Bank group chief executive officer Rana Talwar, along with a Citi group fund and two other global funds, including Chrysalis Capital, are looking at taking a stake in Centurion Bank.
However, the current total foreign stakeholding is at 36.80 per cent and the slab of 49 per cent was creating problems for Sabre to take a substantial stake.
The major foreign stakeholders in the bank are Keppel Bank (around 17.71 per cent) through Kephinance Investment (Mauritius) Pte Ltd, the Asian Development Bank (10.22 per cent), and the International Finance Corporation (8 per cent). Some of the existing shareholders are also likely to take an additional stake in the bank.
The Netherlands-based ING Group can also now increase its stake in ING Vysya Bank. ING currently has a 43.99 per cent stake in the bank.
ING Vysya Bank's managing director Bart Hellemans said: "This is a positive initiative. We however have to look at all the modalities. It is a very complex issue as different regulators are involved like the RBI, Sebi, IRDA etc. We have to look at all the issues. The ING Group is always looking at developing the Indian operations."
It can immediately increase its stake in the bank to 49 per cent by buying out International Finance Corporation stake in the bank.
IFC had in August 2002 sold a 4.66 per cent stake in Vysya Bank to investors cutting down their stake from 10 per cent earlier. ING can now takeover this 5.01 per cent of IFC on an immediate basis as it was earlier slotted as an FDI.
The Foreign Investment Promotion Board has earlier stated that ING could hike its stake in the local bank provided the 49 per cent sectoral cap on FDI for the banking sector is not breached.
However, even as the budget has allowed at least 74 per cent stake for the subsidiary route of foreign banks, they do not seem to be much enthused.
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