The government may consider hiking the foreign direct investment (FDI) limit in public sector banks from 20% to as high as 49% after conducting a review of foreign direct holdings in these banks, a senior government official said on Friday. The goal is to attract foreign investors to Indian banks while raising their capital base and creating more big banks in the process, the official added.
After the finance minister’s Budget speech on Sunday, department of financial services secretary M Nagaraju said the finance ministry was still considering raising the FDI limit in PSBs to 49% and that inter-ministerial consultations were being held on the issue.
“What should be the level of FDI in PSBs is still under consideration. Whatever is the decision taken, it would have to be less than 49%,” Nagaraju said, since the government is required to hold at least 51% in these banks. The FDI limit for private-sector banks is 74%, with up to 49% of FDI is allowed through the automatic route – that is, without needing prior permission from the government or the RBI. For FDI above 49%, the government’s permission is required.
Mint had reported in July 2025 that the government planned to raise the FDI limit in PSBs to 49% while keeping voting rights capped at 10%.
Tiny foreign holdings
The number of shares the union government holds in 12 PSBs has not declined since 2020, though its shareholdings have declined in some of these banks that have issues fresh shares to raise capital. However, foreign investment in PSBs is still tiny.
The top six PSBs had foreign institutional holdings 4.55% to 11.38% as of 30 June 2025, and almost no investment from foreign companies or banks. Even individual investors, mutual funds, corporate bodies and so on have far less than 10% shareholding in PSBs.
A higher FDI limit would be expected to bring in more capital for these banks, helping them expand their operations with the aim of achieving the scale of State Bank of India or HDFC Bank, Nagaraju said. “We need to have at least three or four big banks for a country of our size,” he added, as they will be able to handle bigger risks and offer bigger loans. “None of the banks today can do that alone,” he said. “We don’t have the financial capacity to lend big amounts.”
To attract more capital, PSBs are expected to launch qualified institutional placements (QIPs) of shares worth about ₹50,000 crore in FY27, more than the the ₹45,000 crore expected in FY26, Nagaraju added.
‘IDBI sale this fiscal year’
Asked about the strategic sale of IDBI Bank , the secretary said financial bids would be invited this month or the next so that the process could be completed this fiscal fear. The government, which owns 45.48% in IDBI Bank, and state-owned LIC, which holds 49.24%, together plan to sell 60.7% of the lender. IDBI Bank had to be rescued by the state-owned insurer in 2019 after a surge in bad loans. On the LIC share sale, Nagaraju said the company may launch an offer next year to sell a portion of government’s stake.
Speaking about the formation of high -level committee on banking proposed in the budget, Nagaraju said the committee’s terms of reference would be finalised first, before its constitution. “Through the committee, we will look at what policy and regulatory changes would enable banks to support Vision 2047,” he added.
“The country aspires to become a $30-trillion economy by 2047. For this to happen, it will require credit worth $ 36-37 trillion. We have to see how we can lay the roadmap so that the country can progress on these lines,” Nagaraju said.
With regard to keeping UPI transactions free, Nagaraju said Budget FY27 has provided ₹2,000 to keep transaction costs for UPI at zero, having spent ₹7,200 crore on this in the past four years. “About two-thirds of population is still to be onboarded to UPI. It needs to remain an attractive payment mechanism so that more people use it,” he said.
