India May Raise Foreign Investment Limit in Public Sector Banks

The Indian government is considering raising the foreign investment limit in public sector banks (PSBs) from the current 20%. The move is aimed at strengthening these banks, enabling them to raise more capital, and helping them become globally competitive. However, the government plans to retain at least 51% ownership to ensure that PSBs remain under public control; The Economic Times reported.

This proposal is part of a larger set of reforms designed to boost the economy amid global uncertainties. A final decision will be taken at the highest level of government.

Financial Services Secretary M. Nagaraju recently stated that PSBs have moved beyond survival and stability and are now ready to play a bigger role in India’s growth journey toward “Viksit Bharat 2047.” He stressed the importance of governance, innovation, and resilience, along with the need for PSBs to expand their role across traditional and emerging industries.

Currently, foreign investors can hold up to 74% in private banks, compared to only 20% in PSBs, where voting rights are further capped at 10%. The government is examining ways to relax these restrictions without weakening the public character or decision-making powers of state-run banks.

Industry experts believe this could be a game changer. With India’s high growth potential and major infrastructure investments, foreign investors may find PSBs very attractive. A senior banker suggested that introducing mechanisms like a “golden share” could give the government control even with higher foreign stakes.

PSBs have shown strong improvement in recent years. Their gross non-performing assets have fallen to 2.58% in March 2025 from 9.11% in March 2021. Net profits have risen sharply to ₹1.78 lakh crore, while dividend payouts have also increased. Despite this progress, India’s bank credit-to-GDP ratio remains relatively low, indicating significant room for further growth in the sector.