The Centre is considering raising the 20% cap on foreign investment in public sector banks.
The government plans to retain at least 51% ownership to preserve PSBs’ public-sector character.
Officials say strong PSB performance makes them attractive to investors.
The Centre is reportedly considering a proposal to raise the cap on foreign investment in public sector banks (PSBs). Currently, foreign holding in a PSB is limited to 20%.
According to an Economic Times report, the proposal is part of the government’s broader economic reform plans aimed at navigating geopolitical turmoil. While opening the door to larger foreign investments, the government intends to keep its ownership in PSBs at or above 51%, ensuring they retain their public-sector character.
At present, overseas ownership in PSBs is capped at 20%, with voting rights restricted to 10%. In contrast, private banks allow up to 74% foreign holding. Officials are examining ways to relax the rules without compromising board autonomy or the public role of state-run lenders, the newspaper said.
Officials believe the improved performance of PSBs in recent years, coupled with India’s strong growth potential and large infrastructure push, makes them attractive to global investors. However, securing adequate capital remains a challenge. A senior bank executive told ET that foreign investment could help Indian banks expand globally, provided adequate safeguards are in place. The option of introducing a “golden share”, allowing the government to retain control irrespective of its stake, is also under consideration.
The discussion followed PSB Manthan 2025, a two-day conclave held in Delhi earlier this month, which concluded with a goal to place at least two Indian PSBs among the world’s top 20 banks by 2047.
The government is also considering the merger of smaller PSBs. Financial Services Secretary M. Nagaraju said PSBs have moved beyond the survival and stability phase and are now positioned to play a larger role.
India’s largest lender, State Bank of India, currently has about 10% foreign ownership. The sector overall has shown strong progress, with gross NPAs falling to 2.58% in March 2025 from 9.11% four years earlier, while net profits rose from ₹1.04 lakh crore to ₹1.78 lakh crore. Dividend payouts also increased to ₹34,990 crore from ₹20,964 crore.
