India’s finance ministry is crafting a major plan for public sector banks. The government will widen doors for foreign investment and has mapped out doubling their strength over the next five years. Financial Services Department Secretary M Nagraju said the center is eyeing 49 percent Foreign Direct Investment (FDI) in these banks. Right now, the limit stands at 20 percent.
The ministry has been chatting with the Reserve Bank of India on this for months. The idea isn’t finalized yet. Foreign investors are warming up to India’s banking scene. Proof comes from Dubai’s Emirates NBD snapping up 60 percent stake in private lender RBL Bank for 3 billion dollars. Private banks here allow up to 74 percent foreign investment. But no single foreign entity can grab more than 15 percent without special RBI nod.
Nagraju noted, “We’re still debating the FDI level for PSBs.” Whatever cap comes, it may fall below 49 percent. Reason: Government must hold 51 percent stake. Private banks get 74 percent FDI limit, with 49 percent on automatic route—no prior government or RBI okay needed. Beyond 49 percent requires government approval. Mint’s July 2025 report flagged the government’s push to hike PSB FDI to 49 percent. Voting rights would stay capped at 10 percent.
Government stake dipped in percentage terms in some banks post-2020. Nagraju clarified no drop in total shares across 12 public banks. Fresh shares issued for capital raising trimmed the percentage in spots. On IDBI Bank’s strategic sale, he said financial bids could come this month or next.
Raising FDI in a bank means letting foreign players buy bigger shares. Simply put, higher limits let overseas firms, banks, or investors scoop more equity. Take a public bank: Current 20 percent FDI caps foreigners at that combined. Jump to 49 percent, and they could own nearly half.
