The finance ministry is considering raising the foreign direct investment (FDI) limit in public sector banks (PSBs) to 49 per cent from the current 20 per cent as part of efforts to strengthen their capital base.
Financial services secretary M. Nagaraju said inter-ministerial consultations are underway on the proposal, and a final decision has not yet been taken.
Currently, FDI in PSBs is capped at 20 per cent, while private-sector banks are permitted to receive up to 74 per cent foreign investment. In private banks, FDI of up to 49 per cent is allowed through the automatic route, while investments beyond 49 per cent and up to 74 per cent require government approval.
The government’s shareholding in the 12 public sector banks remains high and is above 90 per cent in at least three lenders (see chart).
The private sector banks, meanwhile, have attracted strong foreign investor interest in 2025, with RBL Bank, Yes Bank, IDFC First Bank and Federal Bank together securing investments of over ₹54,000 crore. Industry sources said this underscores the depth of overseas capital available for India’s banking sector and strengthens the case for widening access to foreign funds for state-owned lenders as well.
In the Union Budget presented on Sunday, finance minister Nirmala Sitharaman announced that a high-level committee will be set up to undertake a comprehensive review of the banking sector to align it with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection.
The Economic Survey tabled last week also suggested that the government may consider amending the definition of a “government company” under the Companies Act, limited to listed entities, to allow them to retain government company status with a minimum 26 per cent ownership. This would preserve special resolution rights for the government while enabling greater monetisation of its stake.
On the strategic sale of IDBI Bank, Nagaraju said financial bids are expected to be invited during this month or next month.
The Centre is also likely to launch an offer next year to divest a portion of its stake in LIC (Life Insurance Corporation of India).
“LIC public offer has to be done slowly. We have asked DIPAM to look at government stake dilution in LIC,” he said.
