No Current Proposal to Increase FDI Limit in PSBs, Says Government

The government, as of December 03, 2025, has confirmed it is not examining any proposal to raise the foreign direct investment (FDI) limit in public sector banks (PSBs).  

Minister of State for Finance Pankaj Chaudhary stated in a written reply to the Rajya Sabha that the 20% cap will remain unchanged. 

Current Rules on Foreign Investment 

Under existing regulations, PSBs have a 20% FDI ceiling, while private sector banks can receive up to 74%. Within this 74% allowance, foreign investment up to 49% is permitted automatically, with higher levels requiring government approval.  

These rules fall under the Banking Companies Acts of 1970 and 1980 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. 

The Reserve Bank of India also mandates prior clearance for any investor seeking to acquire 5% or more of a bank’s paid-up capital. 

Trends in Foreign Ownership 

Figures shared in Parliament show how foreign shareholding in PSBs has shifted between March 2020 and March 2025. 

• State Bank of India continued to hold the highest foreign stake, ending at 11.07% in March 2025.
• Bank of Baroda rose from 4.89% in 2020 to 12.75% in 2024, before easing to 9.43% a year later.
• Canara Bank moved from 3.31% to 10.55% over the same period.
• Punjab National Bank, Union Bank of India, Indian Bank and Bank of India also recorded steady increases.
• Banks such as Indian Overseas Bank, Punjab & Sind Bank, Central Bank of India and UCO Bank remained below 2%. 

Government Holding and Capital Issuance 

Chaudhary said the number of shares held by the Centre in 12 PSBs has not reduced since 2020. The government’s percentage holding has, however, declined in some banks because of fresh capital issuance. Banks raise additional equity to support lending growth, meet regulatory requirements, and maintain the mandated 25% public shareholding. 

Policy Reference 

The Minister also pointed to the public sector enterprise policy, under which NITI Aayog reviews central PSEs in strategic sectors, including banking, and makes recommendations on their treatment. 

Read More: Supreme Court Rejects Reliance Industries Plea Over ₹30 Lakh Fine in Jio Facebook Disclosure Case! 

Conclusion 

With the 20% FDI limit unchanged, shifts in ownership within PSBs continue to come largely from capital-raising activity rather than policy changes. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.