The Centre is reportedly studying a proposal to raise the ceiling on foreign investment in public sector banks (PSBs). At present, overseas investors can hold only up to 20% in PSBs, and their voting rights are capped at 10%. Private banks, in contrast, permit as much as 74% foreign ownership.
The idea, according to an Economic Times report, forms part of broader reform moves to strengthen India’s banking sector while navigating a tricky global environment. Even if the cap is relaxed, the government is said to be clear that its stake will not fall below 51%, ensuring PSBs keep their public-sector character.
Officials reportedly point to the stronger performance of state-run banks in recent years, India’s steady growth outlook, and a large infrastructure push as reasons why global investors may find the sector more attractive. Gross NPAs have fallen sharply — from 9.11% four years ago to 2.58% in March 2025. Net profits climbed from ₹1.04 lakh crore to ₹1.78 lakh crore, while dividend payouts jumped from ₹20,964 crore to ₹34,990 crore over the same period.
Still, raising enough capital remains a challenge, especially if PSBs are to compete on the global stage. Some voices in the sector argue that foreign inflows could give Indian banks the muscle to expand abroad — provided checks and balances are in place.
One option being discussed is a “golden share”, which would allow the government to retain control even if its stake dips. The larger question is how to draw in overseas money without compromising autonomy of the boards or the broader public role of these lenders.
The debate gained momentum at PSB Manthan 2025, a two-day conclave in Delhi earlier this month. The gathering closed with a goal to place at least two Indian PSBs among the world’s top 20 banks by 2047. The government is also weighing fresh mergers of smaller PSBs, with financial services secretary M. Nagaraju noting that banks have moved beyond survival mode and are now in a position to take on a larger role.
India’s largest lender, State Bank of India, currently has around 10% foreign ownership. How much further the doors will be opened, and under what rules, remains to be seen.