Shares of public sector banks advanced on Tuesday, with the Nifty PSU Bank index rising 1.4%, after reports suggested that the government is considering allowing up to 49% foreign direct investment (FDI) in state-owned banks — more than double the current limit of 20%.
According to a Reuters report, the finance ministry has been in discussions with the Reserve Bank of India (RBI) for the past few months regarding this proposal. However, the plan is still under review and has not yet been finalised.
If approved, the move would significantly narrow the gap between regulations for public and private sector banks, as foreign ownership in private banks is already permitted up to 74%.
The proposal comes amid growing foreign investor interest in India’s banking sector. Recently, Emirates NBD of Dubai acquired a 60% stake in RBL Bank for $3 billion, while Sumitomo Mitsui Banking Corporation (SMBC) invested $1.6 billion for a 20% stake in Yes Bank, later increasing its holding by another 4.99%.
Analysts believe that increasing the FDI limit in public sector banks could help these lenders attract more global capital and strengthen their balance sheets in the coming years.
