Overview
- The Finance Ministry has proposed allowing up to 49% foreign direct investment in public sector banks and asked the RBI for its views, with no final decision yet.
- Sources indicate the government would retain a minimum 51% stake and keep safeguards in place, including a reported 10% cap on voting rights for any single shareholder.
- The move targets parity with private banks, where foreign ownership can reach 74%, and comes after prominent deals such as Emirates NBD’s stake in RBL Bank and SMBC’s investment in Yes Bank.
- Markets reacted positively to the reports, with the Nifty PSU Bank index setting a record on Oct 27 and advancing again on Oct 28 as several state-run lenders gained in early trade.
- Brokerage estimates suggest PSU banks could attract roughly $3.5–$3.98 billion in passive MSCI-linked inflows if the cap rises to 49%, though any implementation could take multiple quarters.