India Considers Easing Foreign Bank Ownership Rules

Data from the Reserve Bank of India shows that foreign banks hold less than 4% of the total outstanding bank credit in India as of March 2024. Over the years, this share has remained consistently low. In March 2000, foreign banks held a slightly higher share, but since then, Indian private banks have expanded rapidly while the presence of foreign banks has stayed limited.

RBI Reviewing Existing Rules

The Reserve Bank of India is currently reviewing shareholding and licensing norms. As per the reports, the central bank may allow regulated foreign financial institutions to own higher stakes in Indian banks, subject to case-by-case approvals. The current cap on strategic foreign ownership is 15%, while overall foreign ownership is allowed up to 74%, including portfolio investors.

Recent Acquisitions 

In April, the RBI made an exception to permit Japan’s Sumitomo Mitsui Banking Corp to acquire a 20% stake in Yes Bank. This $1.58 billion transaction is now the largest cross-border banking deal in India. Separately, Canada’s Fairfax Holdings and UAE-based Emirates NBD are competing to buy a 60% stake in IDBI Bank. Emirates NBD also received approval to set up a local banking unit in India.

Regulatory Constraints Still in Place

Foreign investment is still subject to various limits, including a 26% cap on voting rights and a requirement to reduce promoter holdings to 26% within 15 years. Any change to the voting rights cap would require action by the finance ministry.

Read more: RBI Adds 58 MT of Gold to Reserves in FY25!

Conclusion

The RBI is exploring options to ease restrictions, with capital needs and foreign interest both rising. Any adjustments are expected to be gradual and based on specific cases.

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