Govt Considering Raising FDI in Nationalised Banks To 49%

Mumbai: The government could raise the foreign direct investment (FDI) limit in public sector banks from 20 per cent to as high as 49 per cent after conducting a review of foreign direct holdings in these banks.

The objective is to attract foreign investors to Indian banks while raising their capital base and creating more big banks in the process, Financial Services Secretary M Nagaraju said on Monday.

The Union government’s holding of the number of shares in 12 public sector banks (PSBs) has not declined since 2020. But, the percentage of its shareholding has declined in some of these banks due to issuance of fresh shares to raise capital.

Currently, the FDI ceiling stands at 20 per cent for PSBs and 74 per cent for private sector banks. In private banks, up to 49 per cent FDI is permitted through the automatic route, while investments beyond 49 per cent and up to 74 per cent require government approval. There is also a cap of 15 per cent holding by any single foreign institution in Indian banks, unless relaxed by RBI. “We are still considering, and inter-ministerial consultation is on for raising FDI cap to 49 per cent."

Nagaraju said that India needs 3-4 big banks as only SBI and HDFC Bank are among the world’s top 100 lenders. He said that currently, most Indian banks don’t have the financial capacity to lend big amounts. He said bigger banks will be able to handle bigger risks and give out bigger loans. “None of the banks today can do that alone,” he said.

On the strategic sale of IDBI Bank, the secretary said financial bids are expected to be invited either this month or the next.