M Nagaraju, Secretary, Department of Financial Services
The Finance Ministry is contemplating hiking foreign direct investment (FDI) in public sector banks to 49 per cent from the current 20 per cent, a move which can bring them at par with private banks.
The Union government’s holding of the number of shares in 12 public sector banks (PSBs) has not declined since 2020. But, the percentage of its shareholding has declined in some of these banks due to issuance of fresh shares to raise capital.
“We are still considering, and inter-ministerial consultation is on for raising FDI cap to 49 per cent,” Financial Services Secretary M Nagaraju said.
Additional capital
He also said: “We need credit-to-GDP ratio to increase to 150 per cent from 56 per cent now. We need to see if we should have additional capital or deploy existing capital more effectively or whether we should take a look at capital adequacy ratio. All of this require a calibrated approach.”
The government allows up to 49 per cent of FDI in private banks through automatic route whereas permission is required to have foreign investment above 49 per cent and up to 74 per cent. There is also a cap of 15 per cent holding by any single foreign institution in Indian banks, unless relaxed by RBI.
He also said that Indian economy would need 3-4 big banks as only SBI and HDFC Bank are among the world’s top 100 lenders. Admitting that most Indian banks don’t have the financial capacity to lend big amounts, he said bigger banks will be able to handle bigger risks and give out bigger loans. “None of the banks today can do that alone,” he said.
About the IDBI Bank strategic sale, he said that financial bids would be invited during this month or next. The government owns 45.48 per cent in IDBI Bank, while LIC holds 49.24 per cent. Both LIC and government together may sell 60.7 per cent share in IDBI Bank.
Nagaraju also said that PSBs will launch qualified institutional placement (QIP) of shares worth about ₹500 billion.
Published on February 2, 2026
