Minister of State for Finance Pankaj Chaudhary informed Parliament on Tuesday that the government is not considering any proposal to raise the foreign direct investment (FDI) cap in public sector banks. Following this clarification, PSU bank stocks dropped sharply on Wednesday. Indian Bank fell the most, declining 6%, while Punjab National Bank, Bank of India, Canara Bank, Bank of Baroda, Central Bank of India, Union Bank, Punjab & Sind Bank, and UCO Bank slipped up to 2%. Consequently, the Nifty PSU Bank index slid nearly 3% to 8,264—about 5% below its recent peak of 8,665.
Chaudhary clarified that there is no plan to increase the FDI limit in PSU banks from the current 20% to 49%. As per RBI’s Master Directions on shareholding in banking companies, any investor seeking to raise its stake beyond 5% in a public sector bank must obtain RBI approval. PSU banks must also maintain SEBI’s requirement of at least 25% public shareholding. Currently, India allows up to 20% FDI in PSU banks and up to 49% in private banks automatically, extendable to 74% with regulatory approval.
He added that while the government’s share count in PSU banks has remained unchanged since 2020, its percentage stake has fallen due to capital-raising efforts that help banks grow and ease fiscal pressure on the Centre.