PSU Bank Index Falls Nearly 3% After Govt Clarifies FDI Limits Remain Unchanged

Shares of India’s state-run banks, including Indian Bank Ltd. and Punjab National Bank Ltd., fell up to 4% on Wednesday, December 3, following clarification from the Finance Ministry on foreign investment limits in the sector. The announcement triggered a sell-off after recent market optimism about higher foreign inflows.

FDI Limits in PSU Banks Remains Unchanged at 20%

The Finance Ministry clarified in a written reply to the Lok Sabha that the current foreign direct investment (FDI) limits remain unchanged. For public sector banks (PSBs), the FDI limit is 20%. In private banks, foreign investment can go up to 49% through the automatic route, with government approval required to increase it to 74%.

Additionally, any acquisition of a bank resulting in a person owning or controlling 5% or more of its paid-up capital requires prior approval from the Reserve Bank of India (RBI). This ensures that foreign ownership remains controlled and does not compromise the stability of the banking sector.

Foreign Shareholding in PSU Banks

As of the March 2025 quarter, several PSU banks already have notable foreign ownership. The State Bank of India (SBI) has 11.07% foreign holding, followed by Canara Bank at 10.55% and Bank of Baroda at 9.43%. These levels remain well within regulatory limits, indicating that the current FDI caps are sufficient to manage foreign participation without concentration risks.

PSU Bank Index Performance 

The PSU Bank index had been rising over the past few months, gaining 11.4% in September, 8.7% in October, and 4% in November. These gains were driven by market speculation that the government might increase the FDI limit in state-run lenders. However, after the clarification, shares of Indian Bank fell 3.5%, marking the second consecutive day of losses.

Other PSU banks such as Punjab National Bank, Bank of Baroda, and Bank of Maharashtra saw declines between 1.5% to 2.5%. The retail portion of Bank of Maharashtra’s Offer For Sale (OFS) was also open on the same day, contributing to the market movement.

Read more: Car Sales Nov 2025: Maruti Suzuki Leads the Market.

Conclusion

The Finance Ministry’s clarification has reassured investors that FDI limits in PSU banks remain unchanged at 20%, while private banks have a higher threshold. The market reaction reflects the sensitivity of PSU bank stocks to foreign investment news. Investors should monitor regulatory announcements and ongoing market developments to understand their potential impact on bank shares.

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. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.