Advertisement
India is considering a proposal to increase the foreign investment limit in state-run banks from the current 20% to 49%. The Finance Ministry and the Reserve Bank of India (RBI) have been discussing the plan to help government-owned banks attract more foreign capital and bring their rules closer to those of private lenders, which allow up to 74% foreign ownership. The proposal, still under review, includes safeguards such as maintaining a minimum 51% government stake and limiting individual voting rights to 10%.
India is preparing to raise the foreign investment ceiling in its state-run banks to as much as 49%, according to sources familiar with ongoing policy discussions. The proposal, if approved, would more than double the current cap of 20% and aims to strengthen the capital position of public sector banks through higher foreign participation. Advertisement
Officials from the Finance Ministry have been holding discussions with the Reserve Bank of India (RBI) over the past few months to assess the implications of this policy shift. The plan is still under consideration and will require final approval from both authorities before implementation.
The proposal comes at a time when interest from overseas investors in India's banking sector has been increasing. Recently, Dubai-based Emirates NBD acquired a 60% stake in RBL Bank for about USD 3 billion, while Japan's Sumitomo Mitsui Banking Corporation invested USD 1.6 billion to acquire a 20% stake in Yes Bank, later increasing it by another 4.99%. These transactions have highlighted the growing foreign appetite for Indian financial institutions.
Currently, foreign shareholding in government-owned banks remains relatively low. Canara Bank has the highest foreign ownership of about 12%, while UCO Bank has almost none, based on data from stock exchanges as of late September. By contrast, private sector banks can have up to 74% foreign ownership, creating a wide regulatory gap between the two categories.
India presently has 12 government-owned banks, which together hold assets worth around INR 171 trillion (about USD 1.95 trillion) as of March. These banks account for nearly 55% of the country's total banking sector. According to the proposal, the government plans to retain at least a 51% stake in all state-run banks, ensuring continued control even after the foreign investment cap is raised.
State-owned banks are often seen as weaker than their private counterparts due to their broader social obligations, such as extending credit to lower-income borrowers and operating in rural areas. These responsibilities have, over time, contributed to higher non-performing assets and lower returns on equity compared to private lenders.
The Reserve Bank of India has recently eased several regulatory measures to attract more investment and modernise the sector. However, officials indicated that key safeguards will remain in place. A single shareholder's voting rights will continue to be limited to 10% to prevent concentrated decision-making or undue control by any one investor.
India's economic growth, averaging around 8% over the past three fiscal years, has created strong demand for credit, boosting the appeal of the banking sector. Between January and September, deals in India's financial services industry rose by 127% to nearly USD 8 billion, reflecting renewed investor confidence.
By narrowing the gap between private and public sector bank regulations, the government hopes to attract long-term capital inflows while maintaining control and stability within the state-run banking system.
Source Reuters
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
