No plans to raise FDI limit in government banks
What's the story
The Indian government has no plans to increase the Foreign Direct Investment (FDI) limit in public sector banks from the current cap of 20%. The clarification was given by Minister of State for Finance Pankaj Chaudhary, in a written reply to an unstarred question in Rajya Sabha. The minister also explained that the existing framework for foreign investment in banks is governed by two key acts: the Banking Companies Act 1970/80 and the Foreign Exchange Management (Non-Debt Instruments) Rules 2019.
Investment guidelines
Current FDI limits and regulations
Public sector banks have an FDI cap of 20%, while the private sector banks can receive foreign investment up to a limit of 74%. Within this cap, up to 49% is allowed through the automatic route, with any investment beyond that requiring government approval.
Regulatory oversight
RBI's role in share acquisition
The Minister's response also highlighted the Reserve Bank of India's (RBI) Master Directions on acquisition and holding of shares/voting rights in banking companies. These directions require prior approval from the central bank for any share purchase that results in ownership or control of 5% or more of a bank's paid-up capital. This regulation further ensures that foreign investments are monitored and controlled effectively.
Investment trends
Year-wise FDI details in public sector banks
The Minister also provided year-wise FDI details in public sector banks from March 2020 to March 2025. State Bank of India (SBI) had the highest foreign shareholding during this period, consistently above 10% and ending at 11.07% in March 2025. Bank of Baroda's FDI rose from 4.89% in March 2020 to a peak of 12.75% in March 2024 before declining to 9.43% by March 2025.
Market fluctuations
Other banks' foreign shareholding trends
Canara Bank's foreign shareholding rose from 3.31% to 10.55% during this period. Punjab National Bank's FDI increased from 2.30% to 5.85%. Union Bank of India's FDI also grew significantly, from a mere 1.34% in March 2020 to an impressive 7.48% by March-end last year (FY25). However, Bank of India witnessed a decline in the final year, while Indian Overseas Bank maintained consistently low foreign shareholding over the years under review (FY20-FY25).