India is reportedly considering increasing the foreign direct investment (FDI) limit in state-run banks from the current 20% to 49%, according to a Reuters report. The proposal, currently under discussion between the Ministry of Finance and the Reserve Bank of India (RBI), is part of a broader effort to attract global capital, boost competitiveness, and align public sector banks (PSBs) with private sector counterparts that already allow up to 74% foreign ownership.

Key Highlights

• India may raise FDI limit in public sector banks from 20% to 49% to attract foreign capital.
• The move aims to strengthen state-run banks, boost competitiveness, and enhance financial sector stability.

Officials familiar with the matter stated that the plan would retain the government’s majority control, with a minimum 51% stake in all PSBs, ensuring that their public sector status remains intact. However, even with the higher FDI limit, voting rights for individual foreign shareholders are expected to remain capped at 10%, maintaining regulatory safeguards over management influence.

The move comes amid a period of strong performance by India’s banking sector, supported by robust credit growth, improving asset quality, and steady profitability. Analysts suggest that allowing greater foreign participation could enhance liquidity, deepen investor confidence, and provide PSBs with additional capital to meet rising credit demand, particularly from the infrastructure and manufacturing sectors.

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If approved, the reform would mark a major step in India’s financial liberalization journey, aligning with the government’s long-term goal of strengthening the banking ecosystem and attracting sustained foreign inflows into the economy.