India is reportedly planning to raise the foreign investment limit in state-run banks to 49%

The proposal, currently under discussion between the Finance Ministry and the Reserve Bank of India (RBI), would more than double the current ceiling of about 20%, Reuters reported, citing government sources. The plan aims to boost foreign participation while maintaining majority government ownership, ensuring that at least 51% of equity remains in public hands. This step forms part of a broader reform effort to strengthen governance, improve efficiency, and support India’s growing credit demand. Under the proposed framework, the higher cap would cover both direct and portfolio investments, but with conditions such as limits on voting rights—expected to remain near 10%—to safeguard state control. Detailed implementation guidelines are expected once the RBI concludes its consultations. Industry analysts believe that increased foreign investment could help public banks bolster capital, reduce dependence on government funding, and gain access to global technology and management expertise. Public sector banks, which still manage over half of India’s total banking assets, continue to lag private peers in profitability and operational performance. The reform would bring them closer to regulatory parity with private banks, where foreign ownership can reach up to 74%. Following reports of the proposal, shares of major state-owned banks like State Bank of India, Bank of Baroda, and Punjab National Bank rallied sharply. If implemented, this measure could ease capital constraints, enable greater lending, and support key sectors such as infrastructure and small businesses. However, experts caution that its impact will depend on the details—especially governance norms and investor safeguards. Overall, the move signals India’s intent to modernize its banking system and attract long-term global investors, while carefully balancing reform with financial stability.