New Delhi: The Union government is reportedly considering raising the foreign direct investment (FDI) limit in public sector banks (PSBs) from the existing 20% to 49%, a move that could allow greater foreign investment in India’s state-owned banking sector.
According to media reports, the Finance Ministry has prepared a draft Cabinet note on the proposed increase and sought comments from other ministries. The Reserve Bank of India (RBI) is also reported to have supported the proposal, writing to the Centre to recommend that the possibility of raising the investment limit be considered at the earliest.
However, neither the Finance Ministry nor the RBI has made an official announcement confirming the proposed increase. The reported move remains under consideration, and the existing rules continue to apply unless the government formally announces a change.
FDI Limit in Public Sector Banks May Increase from 20% to 49%
Under the proposal reported in the media, the permissible FDI limit in public sector banks could rise from 20% to 49%. If approved, the change would substantially increase the ceiling for foreign investment in government-owned banks.
The proposal would also narrow the difference between the foreign investment limits applicable to public and private sector banks. The reported FDI limit for private sector banks is 74%, compared with 20% for PSBs.
The higher proposed limit could provide public sector banks with greater scope to attract foreign capital, although the actual impact would depend on the final policy, applicable ownership rules and the investment decisions of individual banks.
The reported preparation of a draft Cabinet note indicates that the proposal is being considered at the government level. However, seeking comments from other ministries does not itself constitute approval, and the final decision remains subject to the government’s formal process.
RBI Reportedly Supports the Proposed FDI Hike
The Reserve Bank of India is reported to have backed the proposal to increase the foreign investment limit in public sector banks. According to media reports, the central bank recently wrote to the government recommending that the possibility of raising the FDI cap be considered at the earliest.
The RBI’s reported support adds weight to the proposal, which could change the investment framework for state-owned banks. However, the details of the proposed policy, including its final scope and implementation timeline, have not been officially announced.
The Finance Ministry has reportedly sought comments from other ministries on the draft Cabinet note. Further developments will depend on the government’s consideration of the proposal and any subsequent formal approval.
SBI and Canara Bank Have the Highest Foreign Shareholdings Among PSBs
Among India’s 12 public sector banks, the State Bank of India (SBI) and Canara Bank have the highest reported foreign investment holdings.
SBI has a reported FDI holding of 11.07%, followed by Canara Bank at 10.55%. Both figures are below the existing 20% limit applicable to public sector banks.
The reported proposal to increase the cap to 49% could provide additional headroom for foreign investment in these banks and other PSBs. However, a higher permissible limit would not automatically result in additional foreign investment, as actual holdings would depend on investor interest, bank-specific decisions and the applicable regulatory framework.
The difference between the existing and proposed limits is significant: the proposed 49% cap would be 29 percentage points higher than the current 20% ceiling.
FDI Inflows into India Rise 6% to $19.81 Billion in April-June
The reported proposal comes against the backdrop of an increase in foreign direct investment flows into India.
According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows into India rose 6% to $19.81 billion in the April-June quarter of the current financial year, compared with $18.62 billion in the corresponding quarter of 2025-26.
The increase came despite global uncertainties affecting investment decisions and capital flows.
The monthly figures showed considerable variation during the quarter. FDI inflows nearly doubled to $12.1 billion in April, compared with $6.6 billion in April of the previous year. Inflows subsequently declined to $2.8 billion in May before recovering to $4.91 billion in June.
These figures indicate that India’s overall FDI inflows continued to grow during the quarter, although the monthly trend was uneven.
Services Sector Attracts the Highest FDI Inflows
Among the sectors attracting foreign direct investment during the April-June quarter, services received the largest share, with inflows of $7.04 billion.
Computer software and hardware ranked next, attracting $2.84 billion, followed by trading with $1.92 billion. Non-conventional energy received $1.24 billion, while the automobile sector attracted $622 million.
The figures highlight the continued importance of services, technology-related activities, trading, renewable energy and automobiles in attracting foreign investment into India.
Tamil Nadu Leads States in FDI Inflows
Among Indian states and territories, Tamil Nadu recorded the highest FDI inflows during the April-June quarter, according to the figures provided.
Tamil Nadu attracted $5.95 billion, followed by Maharashtra with $4.22 billion. Delhi recorded inflows of $2.67 billion, while Karnataka received $2.11 billion and Gujarat attracted $1.3 billion.
The state-wise figures show the distribution of foreign investment across several major industrial, commercial and services hubs.
No Official Confirmation Yet on the Proposed FDI Limit Increase
Despite reports of a draft Cabinet note and support from the RBI, the proposed increase in the FDI limit for public sector banks has not been officially confirmed by either the Finance Ministry or the central bank.
Until a formal decision is announced, the existing 20% FDI limit for public sector banks remains applicable. The reported proposal, if approved, could create greater scope for foreign investment in the state-owned banking sector and bring its permissible foreign investment ceiling closer to the 74% limit applicable to private sector banks.
The next steps will depend on the government’s consideration of the proposal, inter-ministerial consultations and any formal decision on the proposed change.
Read also: Banks Seek Relief and Clarity on RBI’s New Forex Rules as Regulator Moves to Support the Rupee
