The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are looking into the breach of investment limit by foreign portfolio investors (FPIs) in HDFC Bank Ltd last week, as well as steps to prevent such violations in the future, a SEBI official said on the condition of anonymity on Wednesday.

There are, however, no plans to change the investment limit for the banking sector, which is presently pegged at 74 percent of the total paid-up capital of a private sector lender, the official added. RBI places these banks on a caution list when foreign ownership touches 72 percent.

The regulators are likely to clarify and tighten trigger points for foreign portfolio investment limit breach for the banking sector, the official added, without elaborating on the mechanism.
Currently, the limits on foreign investments in banks are set by the RBI, while SEBI looks at the trading aspects.

On February 16, the RBI removed HDFC Bank from its ‘ban list’ due to a reduction in foreign ownership of the bank. As a result, Friday onwards FPIs could purchase HDFC Bank’s shares from the open market if they so wanted. In the buying frenzy that emerged the stock opened trade on Friday morning at Rs 1,435 per share, 8 percent higher than the previous closing price.

HDFC Bank’s shares hit a 52-week high and saw a tremendous surge in trading volumes, when RBI once again barred foreign investors from buying additional shares of the bank.

Since most trading happens at high speeds, the time difference between RBI ordering stopping of foreign portfolio investments and actual operationalisation of the direction would be crucial since a few seconds could result in huge investments.

BloombergQuint had reported on Tuesday that the RBI has asked custodians to settle February 17 trades that took place before 1:38 p.m. on the National Stock Exchange Ltd. and before 1:39 p.m. on the BSE Ltd, which means almost all the trades worth up to Rs 2,300 crore that had breached the cap on Friday will be settled.


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