The Finance Ministry has proposed allowing foreign direct investment (FDI) up to 49 per cent in public sector banks (PSBs) and has sought the Reserve Bank of India’s (RBI) opinion on the plan, a senior government official confirmed to Business Today TV on condition of anonymity.
Currently, foreign investment in utility companies is capped at 20%, while private banks can hold up to 74% foreign ownership. “There is a proposal that we are working on,” the official confirmed.
India has 12 state-owned banks, which together hold assets worth around $1.95 trillion as of March, accounting for 55% of the country’s banking sector. According to sources, the government intends to retain at least 51% stake in these banks, thereby guaranteeing a majority stake even if the proposal is accepted.
The move comes amid growing foreign interest in India’s banking sector. In the most recent case, Dubai-based Emirates NBD announced plans to acquire a 60% stake in RBL Bank for $3 billion, marking the largest ever cross-border acquisition in the Indian financial sector. The deal includes a preferential issue to secure a minimum stake of 51% and an open offer of another 26% at ₹280 per share, as per market regulations.
If cleared, it would be the second major foreign investment in an Indian bank this year, following Japan’s Sumitomo Mitsui Banking Corporation’s purchase of a 20% stake in Yes Bank in May. The RBI has already approved investments by Singapore’s DBS and Canada’s Fairfax with Indian lenders.
Even though the RBI has allowed greater foreign participation in the sector, it continues to prefer a case-by-case approval approach rather than a blanket policy change. This allows for tighter control of transactions, but also contributes to political uncertainty that could deter institutional investors in the long term.
