Finance Ministry plans higher FDI limit for PSBs

The Finance Ministry is considering raising foreign direct investment in public sector banks to 49 per cent to strengthen their capital base. Financial Services Secretary M Nagaraju said consultations are under way, while also highlighting plans for IDBI Bank sale and the need for big lenders

New Delhi: The Finance Ministry is contemplating raising foreign direct investment in public sector banks to 49 per cent from the current 20 per cent to enhance their capital base.

“We are still considering, and inter-ministerial consultation is on for raising the FDI cap to 49 per cent,” Financial Services Secretary M Nagaraju said.

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The FDI limit in public sector banks (PSBs) and private sector banks is 20 per cent and 74 per cent, respectively.

In the case of private sector banks, up to 49 per cent of FDI is allowed through the automatic route and beyond 49 per cent and up to 74 per cent, the government route is applicable.

The holding of shares of the Union government in 12 PSBs has not declined since 2020.

Even though the number of shares held by the Union government has not declined, the respective percentage of its shareholding has fallen in some of these banks due to the raising of capital through the issuance of fresh shares.

About the IDBI Bank strategic sale, the Secretary said financial bids would be invited during this month or next month.

As regards big banks, he said the Indian economy would need three to four big lenders.

“We need three to four big banks for a country of our size,” Nagaraju said.