The FDI limit in PSBs and private sector banks is 20% and 74%, respectively

Business Desk mumbai

The government on Tuesday emphatically brushed aside speculation surrounding a potential liberalisation of foreign investment rules for public sector banks. Minister of State for Finance Pankaj Chaudhary made it unequivocally clear that no proposal is being examined to lift the FDI ceiling from the current 20% to 49%, signalling a firm policy stance amid recurring market chatter.

The FDI limit in PSBs and private sector banks is 20 per cent and 74 per cent, respectively. In case of private sector banks, up to 49 per cent of FDI is through the automatic route and beyond 49 per cent and up to 74 per cent, government route is applicable. In response to a written question in the Rajya Sabha on whether the government has proposed raising the FDI limit in PSBs to 49 per cent, Chaudhary replied in the negative.

Further, as per Reserve Bank of India's (RBI) Master Directions on 'Acquisition and holding of shares or voting rights in Banking Companies', share acquisition of a bank resulting in any person owning or controlling 5 per cent or more of the paid-up capital of the bank, requires prior RBI approval. Replying to another question, Chaudhary said, the holding of number of shares of Union Government in 12 public sector banks (PSBs) have not declined since 2020.

However, he said, even though the number of shares held by the Union Government has not declined, the respective percentage of shareholding of the Union Government has declined in some of these banks due to raising of capital through issuance of fresh shares by banks. Fresh capital is raised by the banks to meet their capital requirement for business growth and maintaining regulatory requirement, he said, adding, such capital raising reduces fiscal burden on the Government and strengthen the balance sheet of banks.