20% FDI cap in PSU Banks likely to be reviewed; govt considers PSB consolidation: Sources

The Indian government may consider a fresh round of reforms in the financial sector, with a focus on creating stronger, more competitive institutions. According to sources, further consolidation among public sector banks (PSBs) is not ruled out as India looks to build bigger banks capable of meeting the credit needs of a fast-growing economy.The Centre may also be open to discussions on merging public sector general insurance companies to enhance operational efficiency and improve financial health, especially in the wake of weak underwriting performance and capital constraints in the sector.In a move that could pave the way for greater foreign participation, the government could also consider raising the 20% cap on foreign investment in public sector banks. The thinking is aimed at attracting long-term capital and deepening the investor base in these institutions.Importantly, the government may not be completely averse to allowing corporates into the banking sector, subject to necessary safeguards and regulatory frameworks and RBI approval and oversight.For instance, limiting any possible corporate shareholding in banks at a threshold while ensuring bank funds are not used for self-funding, or allowing big NBFCs backed by corporates to graduate to commercial banks.These are ideas, chatter floating in policy corridors with no firm proposal as such.The overall thinking is part of a broader effort to deepen the banking ecosystem and expand credit penetration while aligning the sector with the goals of a Viksit Bharat.
First Published: Jul 16, 2025 12:08 PM IST

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