Government says no proposal to raise FDI limit in public sector banks

The Narendra Modi government on Tuesday (December 2) confirmed that it has no proposal to increase the Foreign Direct Investment (FDI) limit in public sector banks beyond the existing threshold of 20%. The clarification was issued in a written reply by the Minister of State for Finance, Pankaj Chaudhary, to an unstarred question in the Rajya Sabha.

The Minister stated that the current framework governing foreign investment in banks is defined under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/80 and the Foreign Exchange Management (Non-Debt Instruments) Rules 2019.

Under the regulations, the FDI limit in public sector banks remains capped at 20%, while private sector banks can receive up to 74% foreign investment. Within the 74% ceiling for private banks, up to 49% is permitted through the automatic route, and any investment beyond 49% requires approval under the government route.

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The response also noted that the Reserve Bank of India's Master Directions on acquisition and holding of shares or voting rights in banking companies mandate prior approval from the central bank for any share purchase resulting in ownership or control of 5% or more of a bank’s paid-up capital.

The details submitted with the reply provide year-wise FDI levels in public sector banks from March 2020 to March 2025. State Bank of India

maintained the highest foreign holding, consistently above 10%, ending at 11.07% in March 2025. Bank of Baroda saw FDI rise from 4.89% in March 2020 to 12.75% in March 2024 before settling at 9.43% in March 2025. Canara Bank’s foreign ownership increased from 3.31% to 10.55% over the period.

Punjab National Bank moved from 2.30% to 5.85% between March 2020 and March 2025. Union Bank of India rose from 1.34% to 7.48%. Bank of India expanded from 0.40% to 4.52% by March 2024, easing to 3.89% in March 2025. Indian Bank touched 5.29% in March 2024 before closing at 4.74%. Bank of Maharashtra increased steadily to 1.93%.

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Other public sector banks recorded lower foreign ownership through the period. Indian Overseas Bank remained below 0.27%. Punjab and Sind Bank ended at 0.76%. Central Bank of India rose to 1.27%, while UCO Bank stayed at or below 0.14%.