India Proposes Raising Foreign Investment Capital to 49% in State-Run Banks

A Closer Look at the Proposal
Currently, foreign investors can hold up to 20 % in state-run banks. The proposal would more than double that cap to 49 %. The government would, however, ensure it retains at least 51 % ownership in these banks.The rationale cited by sources is to narrow the regulatory gap between government-owned banks (where the cap is 20 %) and private banks (where foreign ownership up to 74 % is permitted).

Context of Reforms

• Foreign interest in India’s banking sector has been increasing — recent major transactions include a $3 billion stake acquisition by Emirates NBD in RBL Bank and a $1.6 billion stake by Sumitomo Mitsui Banking Corporation in Yes Bank.
   
• State-run banks hold combined assets of about ₹171 trillion (≈ $1.95 trillion) and account for about 55 % of the banking sector in India.

While the cap increase is under discussion, sources note that certain safeguards are likely to stay in place:

• The RBI may maintain a 10 % voting rights limit for any single shareholder even if the overall cap is raised.
   
• The government intends to retain majority ownership (at least 51 %) in the banks, ensuring decision-making remains sovereign.

The Indian government’s proposal to raise the foreign investment cap to 49 % in state-run banks marks a potentially transformative step in banking policy. However, as the discussions have not been finalised, much will depend on the regulatory design, safeguards and the pace of implementation.