FDI limit in PSU banks may rise from 20% to 49%, RBI backs proposal
Synopsis
India is reportedly close to doubling the FDI ceiling in public sector banks from 20% to 49% — a long-overdue move backed by the RBI and currently under inter-ministerial review. If cleared, it would be the most significant structural shift in PSB ownership rules since the 1990s liberalisation, opening the door to serious foreign institutional interest in SBI, Canara Bank, and ten other state lenders.
Key Takeaways
The government is reportedly considering raising the FDI limit in public sector banks from 20 per cent to 49 per cent .
The Finance Ministry has prepared a draft Cabinet note and circulated it to other ministries for comments.
The RBI has backed the proposal and reportedly written to the government urging the hike be considered at the earliest.
SBI holds the highest FDI among the 12 PSBs at 11.07 per cent , followed by Canara Bank at 10.55 per cent .
India's total FDI rose 22 per cent to $30.65 billion in April–June 2026–27 ; Tamil Nadu led states with $5.95 billion .
No official announcement has been made by the Finance Ministry or the RBI as of 21 October 2026 .
The Indian government is reportedly weighing a significant increase in the foreign direct investment (FDI) limit in public sector banks (PSBs) — from the current 20 per cent to 49 per cent — a move that could reshape the capital landscape of state-owned lenders, according to multiple reports.
What Is Being Proposed
The Finance Ministry has reportedly prepared a draft Cabinet note for the proposed FDI limit hike and has circulated it to other ministries for comments, according to reports. The Reserve Bank of India (RBI) has backed the proposal and has also recently written to the government urging that the increase be considered at the earliest, the reports indicate. No official announcement has been made by either the Finance Ministry or the RBI as of now.
The Current Landscape
The proposed change would bring PSBs closer — though not fully in line — with the 74 per cent FDI ceiling already permitted in private sector banks. Among the 12 PSBs currently operating, State Bank of India (SBI) holds the highest foreign investment at 11.07 per cent, followed by Canara Bank at 10.55 per cent. Both figures are well below even the existing 20 per cent cap, underscoring the headroom available for foreign capital even before a formal limit revision.
India's FDI Inflows: The Broader Picture
The deliberation comes as India's overall FDI receipts show resilience. FDI equity inflows into India rose 6 per cent to $19.81 billion in the April–June quarter of the current financial year, up from $18.62 billion in the same quarter of 2025–26, according to data from the Department for Promotion of Industry and Internal Trade (DPIIT).
Month-wise, inflows nearly doubled to $12.1 billion in April — against $6.6 billion a year earlier — before easing to $2.8 billion in May and recovering to $4.91 billion in June. Including reinvested earnings and other capital, total FDI surged nearly 22 per cent to $30.65 billion during April–June 2026–27.
Sectorally, services attracted the largest share at $7.04 billion, followed by computer software and hardware ($2.84 billion), trading ($1.92 billion), non-conventional energy ($1.24 billion), and automobiles ($622 million).
Which States Are Attracting the Most Capital
Tamil Nadu led all states with $5.95 billion in FDI during the quarter, followed by Maharashtra ($4.22 billion), Delhi ($2.67 billion), Karnataka ($2.11 billion), and Gujarat ($1.3 billion).
Why This Matters
Raising the FDI ceiling in PSBs could improve their capital adequacy ratios and enhance their ability to lend, particularly to infrastructure and manufacturing sectors that are central to India's growth targets. Critics, however, may raise questions about strategic control in institutions that hold a dominant share of retail deposits and priority-sector lending. This is the first reported attempt to meaningfully close the FDI gap between public and private sector lenders since the banking sector was liberalised in the 1990s. If approved, the change is expected to trigger fresh interest from global institutional investors in PSB equity.
Point of View
Creating an uneven playing field for capital access. But raising the limit does not guarantee capital will flow: SBI's foreign holding sits at just 11 per cent despite the existing room. The deeper question is whether foreign investors will find PSB governance, loan-book quality, and return profiles compelling enough to buy in. If the government links the FDI hike to credible governance reforms, it could be transformative; without that linkage, it risks being a permissive signal with limited real-world capital impact.
NationPress
21 Oct 2026
Frequently Asked Questions
What is the proposed FDI limit change for public sector banks in India?
The government is reportedly considering raising the FDI ceiling in public sector banks from the current 20 per cent to 49 per cent. The Finance Ministry has prepared a draft Cabinet note on the proposal, which is currently under inter-ministerial review.
Has the RBI supported the FDI hike in PSBs?
Yes, the RBI has backed the proposal and has reportedly written to the government recommending that the FDI limit increase be considered at the earliest. No official statement has been issued by the RBI or the Finance Ministry yet.
How does the FDI limit in PSBs compare with private sector banks?
Private sector banks in India are permitted up to 74 per cent FDI, compared with just 20 per cent in public sector banks. The proposed hike to 49 per cent would narrow but not fully close that gap.
Which public sector bank has the highest foreign investment currently?
State Bank of India (SBI) has the highest FDI holding among the 12 PSBs at 11.07 per cent, followed by Canara Bank at 10.55 per cent — both well below even the existing 20 per cent cap.
How are India's overall FDI inflows performing in 2026-27?
India's total FDI, including equity inflows, reinvested earnings, and other capital, rose approximately 22 per cent to $30.65 billion in the April–June quarter of 2026–27. Equity inflows alone grew 6 per cent to $19.81 billion, with Tamil Nadu leading all states at $5.95 billion.
