PSU Banks in Focus: FDI Cap in PSU Banks May Rise to 49% as Government Holds Inter-Ministerial Talks

The Ministry of Finance is reviewing the foreign direct investment cap in the 12 government owned banks that hold assets of ₹1.71 lakh crore, accounting for 55 % of the banking sector, as per Reuters report. 

India proposes to raise FDI cap in state run banks to 49 Percent 

As per the report, Financial Services Secretary M Nagaraju said on February 2, 2026, that inter ministerial discussions are underway to increase the FDI ceiling from 20% to 49% in state run banks.  

The government plans to retain a minimum 51% shareholding in these banks, although current ownership is generally higher. 

Context of banking sector reforms 

Finance Minister Nirmala Sitharaman announced the formation of a high level committee to review the banking sector as part of the Viksit Bharat agenda.  

The committee will examine structure, efficiency and preparedness of banks, aligning them with the long term vision to 2047 while safeguarding stability, inclusion and consumer protection. 

Read More: Indian Companies' Outward Investments Jump from $14 Billion to $23.6 Billion in FY25! 

Regulatory consultations 

The finance ministry has been consulting the Reserve Bank of India over recent months. No final decision has been announced yet.  

The proposed change is part of a broader review of foreign investment rules, including modernisation of the Foreign Exchange Management (Non Debt Instruments) Rules. 

Implications for public sector banks 

Raising the cap to 49 % would allow foreign investors to hold up to that proportion while the government retains at least 51 % ownership. This could broaden the investor base for the 12 banks and potentially enhance capital availability. 

Conclusion 

The government is evaluating an increase in the foreign investment ceiling for state run banks from 20% to 49% and has set up a committee to review the sector. The proposal remains under discussion with the RBI and other ministries. 

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