India rejects Singapore's plan to invest more in India's ICICI bank

India rejects Singapore's plan to invest more in India's ICICI bank.

Temasek, GIC Bid to Buy 20% of ICICI Spurned by India
By Kartik Goyal

Aug. 28 (Bloomberg) -- India's central bank blocked Singapore's two investment arms from doubling their combined stake in ICICI Bank Ltd., the nation's most valuable lender, curbing the city-state's plans to expand in faster-growing regional economies. Temasek Holdings Pte. and the Government of Singapore Investment Corp. sought to buy a 10 percent stake each in ICICI Bank, said Vinod Rai, special secretary for financial services in the Ministry of Finance. They currently own a 9.7 percent stake worth $1.1 billion.

According to the article, Singapore has specifically requested India to treat Temasek Holdings and GIC as separate entities.

The Reserve Bank of India's rejection was based on its "interpretation" of the India-Singapore agreement, the finance ministry's Rai said. Temasek had a 7.4 percent stake in ICICI Bank and GIC owned 2.3 percent of the Mumbai-based lender as of July 29, said Rakesh Jha, an official in the bank's investor relations department. In a June 2006 accord signed by Singapore Prime Minister Lee Hsien Loong and his Indian counterpart Manmohan Singh, GIC and the Ministry of Finance-owned Temasek were to have been treated as separate entities.

Nonetheless, the Reserve Bank ruled that the 2005 agreement allowing the Singapore entities to be treated as "independent and unrelated" entities didn't cover investment in banks.

Singapore and India may have to revisit the terms of the agreement, but I don't expect this decision to adversely impact Singapore's investments in India. According to the Federation of Indian Chambers of Commerce and Industry, Singapore is India's largest trading and investment partners in ASEAN.