India is planning to raise the FDI limit in public sector banks to up to 49% amid a flurry of M&A deals in the private corner of India’s financial services industry, Reuters reported on Monday citing sources.
The finance ministry has been discussing the matter with the Reserve Bank of India over the past couple of months, the sources said, adding that a proposal has yet to be finalised. A second source confirmed that an FDI limit of 49% for PSU banks is under discussion, adding that the move is part of an attempt to narrow the gap between regulations for private and public sector banks.
The FDI limit for PSU banks is 20% while that for private banks is 75%. The government plans to retain a minimum shareholding of 51% in its banks.
Among PSU banks at present, Canara Bank has the highest shareholding of 12% while UCO Bank has nearly zero, according to stock exchange data.
Both sources declined to be identified as discussions are not public. India’s finance ministry and the RBI did not immediately respond to Reuters’ emails seeking comments.
M&A deals in India’s banking sector
To be sure, foreign interest in India’s banking sector is on the rise. The value of M&A deals in India’s financial sector jumped 127% to $8 billion between January and September 2025.
- In May 2025, Japan’s Sumitomo Mitsui Banking Corp. bought a 20% stake in Yes Bank Ltd. for $1.6 billion, and then raised it to 24.99% in August.
- In October 2025, Dubai’s Emirates NBD Bank picked up a 60% stake in RBL Bank Ltd. for a little over $3 billion.
- In October 2025, NBFC Sammaan Capital Ltd. agreed to sell a billion-dollar stake to Abu Dhabi’s International Holding Co. PJSC.
India’s government-run banks are also seeing interest from overseas investors and raising the FDI limit will help them gain more capital in the coming years.
India has 12 PSU banks with combined assets of ₹171 lakh crore (about $1.95 trillion) in FY25. That’s 55% of the banking sector.
On Monday, the Nifty PSU Bank index rose as much as 3.02% to a record high of 8,053.4 points but pared some of the gains to end the day 2.22% higher. The benchmark NSE Nifty 50 rose 0.66% to 25,966.05 points.