The Indian government is planning to increase the foreign investment limit in Public Sector Undertaking (PSU) banks, which is currently capped at 20%. The move aims to attract more overseas investors and strengthen India’s public banking sector.
Potential Benefits for PSU Banks
If the proposal is approved, foreign investors will be able to hold a larger stake in state-owned banks. This could bring additional capital, technical expertise, and international experience to the public banking system, helping banks improve their balance sheets and operations.
SBI Could See $466 Million Inflows
According to Nuvama Institutional Equities, State Bank of India (SBI) could receive up to $466 million in passive inflows if the foreign investment limit for PSU banks is raised from 20% to 26%. The government plans to retain at least a 51% stake in these banks to ensure they remain publicly owned.
Other Banks That May Benefit
- Bank of Baroda: $76 million potential inflows
- Punjab National Bank: $76 million potential inflows
- Canara Bank: $64 million potential inflows
- Union Bank of India: $62 million potential inflows
- Indian Bank: Estimated $177 million inflows with potential MSCI inclusion
The policy change is expected to take a few quarters for approval. Once implemented, global indices like MSCI may reflect these changes, potentially boosting foreign investments further.
Current vs Proposed Foreign Investment Limits
| Type of Bank | Current FDI Limit | Proposed FDI Limit |
|---|---|---|
| PSU Banks | 20% | 26% |
| Private Banks | 74% | 74% |
This step is part of the government’s broader reforms to make public banks stronger and more competitive in the market.
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