After allowing 100% FDI (Foreign Direct Investment) in aviation, single-brand retail, and construction, the government is now considering to hike the FDI limit in the banking sector to 100% from 74% at present. It is also considering a hike in the foreign investment cap for public sector banks (PSBs), from 20% to 49%.
The proposed changes are reportedly being discussed by the finance ministry, the Department of Industrial Policy and Promotion (DIPP) and the Indian Banks' Association (IBA). Though, there are no official announcements for the talks but the Reserve Bank of India (RBI) may have some objections to the proposals. R Gandhi, former deputy governor of the RBI has said that for foreign banks wanting to pick up full stake in the existing banking entity, the RBI would use fit and proper criterion, see track record, and also prescribe a lock-in-period on FDI. Instead of a blanket policy, the RBI could decide case by case.The RBI had in 2015 reportedly raised objections over the Union government’s proposal to increase the limit to 100% for private sector banks due to “regulatory problems”.
According to the government’s policy, foreign investors - foreign direct investment, foreign institutional investors, and non-resident Indians combined - can invest up to 74% of paid-up capital in private sector banks. Up to 49% foreign investment is allowed under the automatic route; such investments between 49 and 74% require the government’s nod under the present norms.