Government Rules Out FDI Hike in Public Sector Banks

The government has clarified that it is not considering any proposal to raise the FDI limit in public sector banks (PSBs) from 20% to 49%, as confirmed by Minister of State for Finance Pankaj Chaudhary in a Rajya Sabha reply. Currently, the FDI cap in PSBs stands at 20%, while for private banks it is 74%, with up to 49% allowed under the automatic route. Any individual investor acquiring 5% or more in a bank requires prior approval from the Reserve Bank of India. The government also noted that while its shareholding percentage has declined in some PSBs, this is due to banks raising fresh capital to meet growth and regulatory needs — not because of a reduction in the number of shares held by the government. This helps reduce fiscal burden and strengthens bank balance sheets. Banks must also maintain a minimum public shareholding of 25% as per SEBI norms. Under the New PSE Policy for Atmanirbhar Bharat, decisions on strategic sectors like banking will be made by NITI Aayog and approved by an empowered government mechanism — including options like privatisation, merger, or retention. Meanwhile, access to banking in rural areas continues to expand, with every inhabited village now within a 5-km radius of a banking outlet. So all in all the buzz fizzles out on further divesting and capital raise by the Government along with higher private ownership acceptance.