FDI Cap Hike in Public Sector Banks on Hold Pending RBI Review

The Indian government will defer any decision on increasing the FDI limit in public sector banks (PSBs) until the Reserve Bank of India (RBI) completes its review of voting rights and shareholding norms in the banking sector.

Current FDI and Shareholding Norms

• FDI in PSBs: Capped at 20% under automatic route.
• Government ownership: Mandated to hold at least 51% in PSBs.
• FDI in private banks: Allowed up to 74% (49% automatic, up to 74% via government route).
• Voting rights:
  • Promoters in private banks: Capped at 26%.
  • Financial institutions: Max 15% stake.
  • Individual & non-financial investors: 10%, subject to RBI approval.
  • Promoters of non-state banks must reduce holdings to 26% over 15 years.

Why the Delay in Raising the PSB FDI Cap?

• The RBI is conducting a comprehensive review of:
  • Voting rights linked to shareholding.
  • Foreign and domestic shareholding limits.
• The government is awaiting revised regulatory norms before considering any legislative or policy amendments.

Significance

• India’s PSB FDI regime remains conservative, but the broader context of increased global interest in Indian banks and regulatory reforms suggests incremental liberalisation is possible post-RBI review.
• A relaxation in FDI norms could help PSBs access more capital and global expertise, especially in the context of banking sector expansion and privatisation goals.