Government weighs raising FDI limit in private banks to 100%

The government is considering a proposal to increase the foreign direct investment (FDI) limit in private banks to 100 per cent, from the existing 74 per cent, in a bid to boost foreign capital flows into the country.

The Department of Industrial Policy and Promotion (DIPP) has sent a proposal towards this to the Department of Financial Services for comments, sources said.

At present, foreign investors are allowed to hold up to 74-per cent equity capital in a private sector bank in the country, including 49-per cent equity investment under the automatic route and the remaining through the Foreign Investment Promotion Board (FIPB) route.

Investments in the banking sector under the automatic route also include portfolio investments.

The move will help the existing private sector banks, payments banks and small finance banks tap overseas markets to enhance their capital base.

RBI has recently given in-principle approval to 11 entities to set up payments banks and 10 for small banks.

Recently, the government has introduced the concept of composite caps. But given the sensitivities in the sector, the government has said foreign institutional investors (FIIs) cannot exceed the cap prescribed for portfolio investments in private sector banks.

Private lender HDFC bank has already got government approval to raise foreign investment limit to 74 per cent.