India is considering increasing the limit on direct foreign investment in state-run banks to as much as 49%, more than double the current ceiling of 20%, Reuters reported, citing a person directly involved in policy discussions.The finance ministry has been in talks with the Reserve Bank of India over the proposal for the past two months, the person said, noting that the plan remains under deliberation. A second source confirmed the discussions, adding that the move is aimed at narrowing the regulatory gap with private banks, where foreign ownership of up to 74% is permitted.Foreign interest in India’s banking sector has risen sharply, highlighted by Emirates NBD’s recent $3 billion deal to acquire 60% of RBL Bank and Sumitomo Mitsui Banking Corp’s $1.6 billion investment in Yes Bank, which was later increased by another 4.99%, according to Reuters.
The Nifty PSU Bank index jumped as much as 3.02% to a record high of 8053.4 following the Reuters report and ended 2.22% higher.India’s state-run banks, 12 in number with combined assets of ₹171 trillion as of March, account for 55% of the country’s banking system. Despite the planned hike in foreign investment limits, the government intends to retain at least 51% ownership in these lenders, the first source told Reuters.Current foreign shareholding in state-run banks ranges from nearly 12% in Canara Bank to close to zero in UCO Bank, stock exchange data shows.While the RBI has recently eased several banking rules to attract more global capital, safeguards such as a 10% cap on voting rights for a single shareholder will continue, the first source said, per Reuters.
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