According to Reuters report, Financial Services Secretary M. Nagaraju said on Monday that the Indian government is actively discussing at the inter-ministerial level to increase the foreign direct investment (FDI) limit in public sector banks from the current 20 percent to 49 percent. He said that the government is holding inter-ministerial consultations to increase the FDI limit in public sector banks from 20% to 49%.
Earlier media reports had said that the Finance Ministry has been consulting the country’s banking regulator, the Reserve Bank of India (RBI), for the past few months, and according to sources, the proposal has not been finalized yet. The interest of foreign investors in India’s banking sector is increasing, as evidenced by the $3 billion acquisition of 60 percent stake in private lender RBL Bank by Dubai-based Emirates NBD. India currently allows foreign investment of up to 74 percent in private banks, although the stake of any one foreign institution is limited to 15 percent, unless special exemption is granted by the Reserve Bank of India.
government banking sector
The government is now considering liberalizing the foreign investment rules for public sector banks. Financial Services Secretary M. Nagaraju said the country is planning to more than double the existing limit on foreign direct investment in public sector banks. Last year, Reuters reported that increasing foreign ownership limits would help public sector banks attract additional capital in the coming years.
As of March 2025, there are 12 public sector banks in India with total assets of Rs 1.71 lakh crore ($1.95 trillion), which is 55 percent of the banking sector. The government plans to maintain a minimum stake of 51 per cent in these banks, although the current stake is generally higher than this.
Formation of high level committee
Along with the proposed foreign direct investment (FDI) boost, Finance Minister Nirmala Sitharaman on Sunday announced the formation of a high-level committee to comprehensively review India’s banking sector and chart the next phase of reform-led growth. Citing strong balance sheet, record profits, improved asset quality and near-universal coverage, he said the banking system is now well positioned for future-oriented reforms.
Sitharaman said that in the financial sector, the Indian banking sector today is marked by strong balance sheet, historically high profitability, better asset quality and more than 98 per cent coverage. He said that at this time, we are well placed to make a forward-looking assessment of the measures required to move the sector forward on the path of reform-led growth. Sitharaman further said that based on the recommendations of the committee, we will move forward accordingly. The Department of Financial Services will also play an important role in preparing the roadmap for 2047.
Roadmap for NBFCs and Capital Markets
Sitharaman also presented a clear plan for non-banking finance companies, especially public sector companies, under the government’s vision of a developed India. He proposed to restructure some NBFCs into Power Finance Corporation and Rural Electrification Corporation to improve scale, efficiency and growth funding.
Further, the Finance Minister proposed a comprehensive review of India’s foreign investment rules with a view to modernize the Foreign Exchange Management (Non-Debt Instruments) rules and make them investor friendly.
To strengthen domestic capital markets, Sitharaman announced a number of measures to boost the corporate bond market, including a market-making framework, derivatives based on corporate bond indices and total return swaps. Their objective is to improve liquidity, risk management and investor participation.