Government considering raising foreign investment limit in PSU banks
STORIES, ANALYSES, EXPERT VIEWS
India is considering an increase in the foreign investment limit in Public Sector Banks (PSBs) from the current 20%, as it looks to strengthen them into institutions that can raise capital easily, people privy to the development said.
Currently, the foreign direct investment limit in public sector banks is capped at 20%, with voting rights set even lower — at a maximum of 10%. In the case of private sector banks, the limit is 74%. The government is examining how this shareholding and voting structure can be relaxed without compromising the essential character of these banks and the decision-making ability of their boards.
There is a view within the government that the stellar performance of PSBs in the past few years and the growth opportunity given India’s potentially high growth and large investment in infrastructure, make investment in state-run banks very attractive. ‘Today, the biggest constraint is capital, and if we are looking to be among the top global banks, we need a balance sheet to support that ambition. Allowing foreign investment in PSBs can be a game changer if proper guardrails are in place,’ said a senior executive at a state-run lender.
Better financial health: PSBs have substantially improved their financial health. Combined gross non-performing assets dropped to 2.58% of gross advances at the end of March, from 9.11% in March 2021. Net profit increased to Rs 1.78 lakh crore from Rs 1.04 lakh crore, and dividend payouts grew to Rs 34,990 crore from Rs 20,964 crore. According to a CareEdge Ratings report, India’s bank credit-to-GDP ratio remains relatively low, underscoring the significant headroom for long-term credit deepening.
