- Chinese bank ICBC had secured a bank branch license to operate in India from RBI almost a decade ago
- The allotment process is still underway, to complete by mid December
- ICBC has not subscribed to its allotted quota of NPCI shares so far
- Equity dilution by NPCI an effort to diversify, distribute shareholding to a larger set of RBI-regulated entities
The National Payments Corporation of India (NPCI), tasked with creating retail payment and settlement infrastructure in the country, has proposed to allot NPCI shares to Chinese Bank -- Industrial and Commercial Bank of China (ICBC) -- as part of its effort to broadbase the corporation's shareholding. ICBC is one among 131 RBI regulated entities, including all foreign banks, to whom the shares have been offered. ICBC though is yet to subscribe to its quote of NPCI shares.
Two months ago, the list of 131 new shareholders including ICBC was approved in a special resolution on September 18, 2020 at the company's annual general meeting. The retail payment arm, however, says the private placement process is currently underway.
NPCI is still in the midst of broadbasing the equity. This exercise will take a few weeks and is likely to be concluded by mid-December this year. Currently, ICBC, which was among the foreign banks that was initially identified along with other investors for a total equity dilution of a little less than 5 per cent, has not applied for its quota of shares in the private placement. " Hence, NPCI has not issued any shares to ICBC," clarifies NPCI.
Chinese government owned ICBC is also the world's largest bank in terms of assets at $4.0 trillion. The bank is way ahead of US biggies like JP Morgan Chase and Bank of America in terms of total assets , deposits and advances.
It is not known whether ICBC is skipping the private placement on its own or advised otherwise because of the issues between the two countries. Or, it's biding time before applying for its quota as the entire process of private placement is expected to completed by mid December.
The current equity dilution by NPCI is part of its move to diversify and distribute the shareholding to a larger set of RBI-regulated entities which also include foreign banks, NBFCs, and Fintechs. NPCI on its own cannot exclude any RBI regulated entity. In fact , exclusions can take place at the time of the allotment based on the guidelines pertaining to any country or otherwise.
Also read: Bank of China's 1% in HDFC: Should we fuss?
ICBC is already registered in India as a foreign bank. It had secured a bank branch license to operate in India from the Reserve Bank of India (RBI) almost a decade ago. That was when India-China trade ties were beginning to open new opportunities for Chinese banks with branches in India.
In the last one year, political sentiments have dramatically changed against China. The government has tightened foreign portfolio investment rules especially with regard to investments coming from neighbouring countries with a Chinese connection citing 'opportunistic takeovers'.
India had also banned over 100 apps including Wechat, Shareit, TikTok, PUBG etc.
However, there is no bar on Chinese portfolio investment in India. This is actually the fourth recent investment by a Chinese institution. The People's Bank of China had made minority investments in mortgage lender HDFC Ltd, private sector ICICI Bank and non banking entity Bajaj Finance Ltd.
The People's Bank of China is the country's central bank. However, Chinese investments in India's financial services sector are no threat to the financial system. That's because the voting rights in the banking sector has been restricted to 15 per cent of the total shareholding. The acquisition of share beyond 5 per cent of the bank's capital also needs prior approval from RBI.
NPCI's core promoters initially were all big banks lead by SBI, ICICI and HDFC Bank. Four years ago, NPCI diversified its shareholding to include dozens of Indian banks -- both public and private. Further broad-basing the equity shareholding is yet another initiative to include RBI regulated entities like new age NBFCs, Fintechs and foreign banks.