The People's Bank of China holds approximately 3.4 crore shares (~0.5%) in HDFC Bank, currently valued around $800 million. HDFC Bank's board has announced plans to issue bonus shares on July 19—the bank's first bonus allotment ever. The move triggers an unexpected regulatory complication: India's Press Note 3 (2020) requires prior government clearance for any share allotment to Chinese entities, even bonus issues.
Bonus shares traditionally do not change ownership percentages or involve fresh capital inflows; they are simply a reallocation of existing reserves into new shares. However, Press Note 3 is worded broadly enough to create legal ambiguity. The rule was designed to screen foreign direct investment in strategic sectors, and its language may technically capture bonus allotments to Chinese state entities—despite the technical nature of the transaction.
The regulatory grey zone hinges on interpretation. Legally, a bonus issue should not trigger FDI screening because no new money enters the company and no control changes hands. But the broad wording of Press Note 3 has left room for differing readings. Industry experts point to past corporate action ambiguities that have affected shareholder outcomes, suggesting government clarification may be forthcoming.
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