India may raise foreign investment limit in PSU banks
Sep 24, 2025
Synopsis
India is planning to allow more foreign investment in Public Sector Banks. The current limit is 20%. The government wants to strengthen these banks. This will help them raise more capital. The government will keep at least 51% stake. This ensures the banks remain public. The goal is to make them globally competitive.
India is considering an increase in the foreign investment limit in public sector banks (PSBs) from the current 20%, as it looks to strengthen them into institutions that can raise capital easily, people privy to the development said.
This is among several proposals policymakers are discussing as part of a broader slate of reforms planned to boost the economy amid geopolitical concerns.
The government will not reduce its stake below 51%, while allowing higher foreign stakes, ensuring the public character of these banks, said a senior government official. A final call will be taken at the highest level of government, said the official.
Financial services secretary M Nagaraju earlier this month said PSBs have moved beyond the phase of survival and stability, and are now positioned to play a larger role.
Growth Opportunity
They must be champions of growth, innovation and leadership in the journey toward Viksit Bharat 2047. He highlighted the need for PSBs to aspire to global competitiveness, strengthen governance and operational resilience, and expand their role as sectoral champions across both traditional and emerging industries. He was speaking after the third PSB Manthan conclave.
Currently, the foreign direct investment limit in public sector banks is capped at 20%, with voting rights set even lower — at a maximum of 10%. In the case of private sector banks, the limit is 74%. The government is examining how this shareholding and voting structure can be relaxed without compromising the essential character of these banks and the decision-making ability of their boards.
There is a view within the government that the stellar performance of PSBs in the past few years and the growth opportunity given India’s potentially high growth and large investment in infrastructure, make investment in state-run banks very attractive. “Today, the biggest constraint is capital, and if we are looking to be among the top global banks, we need a balance sheet to support that ambition. Allowing foreign investment in PSBs can be a game changer if proper guardrails are in place,” said a senior executive at a state-run lender.
He added that the government can also explore the golden share mechanism, under which control remains with the government, irrespective of the holding. The country’s largest bank by assets, State Bank of India, has about 10% foreign holding. PSBs have substantially improved their financial health.
Combined gross non-performing assets dropped to 2.58% of gross advances at the end of March, from 9.11% in March 2021. Net profit increased to Rs 1.78 lakh crore from Rs 1.04 lakh crore, and dividend payouts grew to Rs 34,990 crore from Rs 20,964 crore. According to a CareEdge Ratings report, India’s bank credit-to-GDP ratio remains relatively low, underscoring the significant headroom for long-term credit deepening.
[The Economic Times]
