A fresh push is underway to modernise India’s banking system as the government explores opening state-owned banks to greater foreign investment.
The government is holding inter-ministerial discussions to raise the foreign direct investment (FDI) cap in public-sector banks (PSBs) from 20% to 49%, Financial Services Secretary M. Nagaraju said on Monday. The remarks came a day after Finance Minister Nirmala Sitharaman announced the formation of a High Level Committee on Banking for Viksit Bharat in the Union Budget. Together, the moves signal a renewed effort to align India’s banking system with the scale needed for its next phase of growth, as the country moves toward becoming the third-largest economy.
The policy rethink comes at a time when India’s banking sector is in one of its strongest positions in decades. Public-sector banks now report healthier balance sheets, record profits, improved asset quality, and near-universal reach. After years of dealing with stressed assets and repeated recapitalisation, PSBs are no longer in crisis mode. However, India’s development goals now demand more from the financial system.
The government’s long-term vision under the “Viksit Bharat 2047” roadmap requires banks capable of funding large, long-term investments in infrastructure, green energy, advanced manufacturing, and technology. This calls not just for stability, but also scale, deep capital bases, and global credibility.
The proposed High Level Committee is expected to review the financial sector in detail, including ownership structures and the case for creating fewer but larger banks. The idea is to build lenders with balance sheets strong enough to compete globally and finance projects comparable to those handled by leading international banks.
Public-sector bank consolidation has already reduced their number to 12, with more mergers under consideration. But consolidation alone does not ensure sufficient capital or global reach. This is where higher foreign investment is seen as a key support tool.
Raising the FDI cap to 49%, while the government retains at least 51% ownership, would mark a major shift in India’s cautious approach to foreign ownership in state-run banks. PSBs account for around 55% of banking assets, and better access to long-term capital could reduce dependence on government recapitalisation while supporting credit growth.
The move would also narrow the gap between PSBs and private banks, which can receive up to 74% foreign investment. Higher limits could attract long-term global investors who bring capital along with governance, risk management, and technology expertise. If managed carefully, the reform could strengthen banks and support India’s broader development agenda.
Also read: Viksit Workforce for a Viksit Bharat
Do Follow: The Mainstream formerly known as CIO News LinkedIn Account | The Mainstream formerly known as CIO News Facebook | The Mainstream formerly known as CIO News Youtube | The Mainstream formerly known as CIO News Twitter
About us:
The Mainstream is a premier platform delivering the latest updates and informed perspectives across the technology business and cyber landscape. Built on research-driven, thought leadership and original intellectual property, The Mainstream also curates summits & conferences that convene decision makers to explore how technology reshapes industries and leadership. With a growing presence in India and globally across the Middle East, Africa, ASEAN, the USA, the UK and Australia, The Mainstream carries a vision to bring the latest happenings and insights to 8.2 billion people and to place technology at the centre of conversation for leaders navigating the future.
