China’s central bank, the People’s Bank of China (PBC), is stuck in a tricky spot. HDFC Bank, India’s biggest private lender, is planning its first-ever bonus share issue. But for PBC, this could turn into a regulatory mess.
As of March 31, the PBC owns 3.4 crore shares in HDFC Bank. These are worth nearly $800 million and give the PBC a 0.5% stake. Now, with the bonus shares coming, the number of shares it holds will double. But here’s the catch—India’s rules on Chinese investments might block that.
What’s the problem?
The issue goes back to Press Note 3 (PN3), a rule made in 2020. It says any company from a country that shares a land border with India needs the Indian government’s approval before investing more money or getting fresh shares. This rule was made to stop sneaky takeovers during the COVID-19 pandemic.
Even though bonus shares are free and don’t change the ownership percentage, they still increase the total number of shares held by a foreign entity. That’s where the confusion starts. Does PN3 apply to bonus shares too?
Lawyers and market watchers say it’s a grey area. “Technically, the ownership percentage remains the same,” said Amit Singhania, a partner at Areete Law Offices. “But if we go by the exact words of PN3, even bonus shares could be a violation.”
Ankita Singh, founder of Sarvaank Associates, agreed. She said bonus shares are normally seen as harmless corporate actions. But when a state-controlled Chinese entity like PBC is involved, the rules get stricter.
Tushar Kumar, an advocate at the Supreme Court, added, “Even non-cash moves like bonus shares can raise red flags, especially in sensitive sectors like banking.”
Is there a way out?
Right now, there is no clear rule that says bonus shares are safe from PN3. In the past, the government did clarify similar rules under Press Note 2 for other sectors. But nothing has been said for PN3 yet.
Industry experts want the government to speak up. They say both companies and investors are confused. Raheel Patel from Gandhi Law Associates said, “Without clear rules, everyone is stuck between business and politics.”
China’s central bank is not just a regular investor. It represents a powerful country. So, any increase—even by bonus shares—in its holding can spark debate. India has become more careful about foreign stakes in important sectors like finance.
As of now, HDFC Bank’s board will meet on July 19 to approve the bonus issue. Everyone is watching what the Indian government will do next.
Also Read IOB Q1 Net Profit Surges 76% to ₹1,111 Crore on Strong Income, Better Asset Quality
