India’s government is preparing to increase the cap on foreign investment in state-run banks to 49 percent, a significant jump from the current 20 percent limit, according to sources close to the discussions. Reuters
Officials from the Ministry of Finance and the Reserve Bank of India (RBI) are actively reviewing the proposal, which aims to strengthen capital infusions into the state-banking sector, which still holds over half of India’s banking assets but is generally seen as financially weaker than its private sector peers. Reuters
Under the plan, the government would retain at least 51 percent ownership of these banks, and foreign shareholders would face limits on voting rights (for example, a maximum of 10 percent per investor) to maintain oversight and control. Reuters
The move comes amid rising global investor interest in India’s banking industry. In recent months, foreign firms have acquired large stakes in private Indian banks, underscoring the potential for increased overseas capital in the sector. Reuters
Market reaction was immediate: The index tracking state-run banks in India jumped to a record high. Analysts say the announcement signals a possible structural shift in how India’s public sector banks are perceived by investors. Reuters
Why this matters:
Allowing higher foreign ownership in state banks could bring fresh capital, improved governance practices and stronger competition for India’s public banks. It may help them better serve India’s growing credit needs and modernise more rapidly. At the same time, retaining majority government control means the political and policy objectives typical of state banks will likely continue.
Key takeaway:
If adopted, the proposal would mark one of the most significant regulatory changes in India’s banking sector in years representing a major opening for foreign capital in what has been a largely protected domain.
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