The Reserve Bank of India (RBI) is holding internal discussions on whether to allow higher foreign ownership in Indian banks, but no final decision has been taken. Sources say the issue will not be made public unless there is internal consensus within the RBI.Currently, foreign institutions can hold up to 15% in an Indian bank, but any stake above 5% requires RBI approval. There are exceptions. Fairfax was allowed to acquire 51% in Catholic Syrian Bank, and SMBC has received approval for a 20% stake. These were approved on a case-by-case basis and required special permission.The broader discussion around easing ownership norms appears to blinked to strategic bank sales, including IDBI Bank. The government and LIC are seeking a buyer for IDBI, and foreign interest has grown. Moneycontrol.com broke the news that Emirates NBD is one of the front runners, a source said, highlighting the need for more flexible ownership rules to attract interest.
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Foreign banks in India operate under various models, with differences in regulatory treatment. Branches of foreign banks like HSBC and Standard Chartered face stricter limits, including branch expansion. In contrast, fully owned subsidiaries like SMBC are treated the same as domestic banks in terms of operations.While the total foreign investment cap in private banks—combining Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) – is 74%, one major restriction remains: no single entity can exercise more than 26% voting rights, regardless of their ownership. This rule, under the Banking Regulation Act, is not under the RBI’s control and is not currently part of the ongoing discussions.Also Read | India’s GDP surprise isn’t enough for RBI to stop being dovishThere is also no indication that Indian private sector manufacturing companies will be allowed to own stakes in banks, according to sources.For the full interview, watch the accompanying videoCatch all the latest updates from the stock market hereFirst Published: Jun 5, 2025 10:55 AM IST
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