India Eyes 49% FDI Cap for Public Sector Banks

India's government is considering raising the foreign direct investment limit in public sector banks to 49 percent from the current 20 percent, as part of efforts to bolster their capital and support economic growth. Financial Services Secretary M. Nagaraju announced the proposal on Monday in New Delhi, noting that interministerial consultations are underway.

The move aims to attract more foreign investors to the 12 public sector banks, where the government's stake remains dominant. Nagaraju explained that increasing the cap would help expand the banks' capital base and enable the creation of larger institutions capable of handling bigger loans and risks. "We need 34 big banks for a country of our size," he said, highlighting that only State Bank of India and HDFC Bank currently rank among the world's top 100 lenders. Most Indian banks lack the financial capacity to extend large-scale credit on their own, he added.

Currently, foreign direct investment in public sector banks is capped at 20 percent, compared to 74 percent in private sector banks. For private banks, up to 49 percent of foreign investment is allowed through the automatic route, with the remainder requiring...