India considering 49% foreign ownership in state-run banks

INDIA is considering allowing foreigners to own as much as 49 per cent stake in its state-run banks as policymakers look to bolster capital at these lenders to fund growth, without entirely giving up control.

The government is discussing raising the foreign direct investment cap to 49 per cent from 20 per cent, federal banking secretary M Nagaraju told reporters on Monday (Feb 2).

Foreign ownership in State Bank of India (SBI) – the country’s largest lender – and 11 other state-owned banks is capped at 20 per cent, a legacy restriction rooted in the government’s desire to retain strategic control of the financial system. The limit is far lower than the 74 per cent foreign investment allowed in private-sector banks and 100 per cent foreign direct investment in local insurance companies.

The ceiling applies to all overseas holdings combined, including foreign institutional investors, pension funds and other non-resident shareholders. While portfolio investors can buy SBI shares freely within the cap, any breach would require regulatory intervention, effectively constraining demand from global funds even as India’s equities gain weight in international benchmarks. BLOOMBERG