Finance Ministry proposes raising FDI limit in state-run banks to 49%

The Finance Ministry has proposed allowing foreign direct investment (FDI) of up to 49% in public sector banks (PSBs) and has sought the Reserve Bank of India’s (RBI) views on the plan, a senior government official confirmed Business Today TV on condition of anonymity.

Currently, foreign investment in PSBs is capped at 20%, while private banks can have up to 74% foreign ownership. “There is a proposal 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 a 51% stake in these banks, ensuring majority ownership even if the proposal goes through.

The move comes amid growing foreign interest in India’s banking sector. In the most recent instance, 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 India’s financial industry. The deal includes a preferential issue to secure a minimum 51% stake, and an open offer for an additional 26% at ₹280 per share, in line with market regulations.

If cleared, this would mark the second major foreign-led investment in an Indian bank this year, following Japan’s Sumitomo Mitsui Banking Corporation’s 20% stake purchase in Yes Bank in May. The RBI has previously approved investments by Singapore’s DBS and Canada’s Fairfax in Indian lenders.

While the RBI has permitted greater foreign participation in the sector, it continues to prefer a case-by-case approval approach rather than a broad policy shift. This allows for tighter scrutiny of deals but also contributes to policy uncertainty that may deter long-term institutional investors.