India May Raise Foreign Investment Cap In State-Run Banks To 49 Per Cent: Report

India is considering allowing foreign investors to own up to 49 per cent in state-run banks, more than double the current cap of 20 per cent, Reuters reported, citing a person familiar with the policy discussions.

The proposal, aimed at attracting more overseas capital, is under review by the Finance Ministry in consultation with the Reserve Bank of India (RBI).

The report said that the move would help public-sector banks secure additional funds in the coming years as foreign interest in India’s financial sector continues to grow.

State-run banks are also seeing interest from overseas investors, and raising the foreign ownership limit will help them gain more capital.

Recent high-value transactions in India’s banking industry have underscored rising global interest, including Emirates NBD’s $3 billion purchase of a 60 per cent stake in RBL Bank and Sumitomo Mitsui Banking Corp’s $1.6 billion acquisition of a 20 per cent stake in Yes Bank, later raised by another 4.99 per cent.

The proposed hike would narrow the gap between regulations governing private and public sector banks.

Currently, India permits up to 74 per cent foreign ownership in private lenders.

Following the report, the Nifty PSU Bank index surged to a record high of 8,053.4 before closing 2.22 per cent higher.

India’s 12 government-owned banks collectively hold assets worth Rs 171 trillion ($1.95 trillion), accounting for 55 per cent of the country’s banking sector. The government plans to retain at least a 51 per cent shareholding in all state-run banks.

While the RBI has recently relaxed several norms to attract foreign participation, the 10 per cent cap on voting rights for a single shareholder will remain to prevent undue control, the Economic Times said, citing a source.

The proposal has not been finalised, and both the Finance Ministry and RBI have yet to comment.

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