Reserve Bank of India Governor Sanjay Malhotra recently told CNBC-TV18 that RBI is reviewing its bank ownership norms and may allow foreign banks to own up to 26% in Indian lenders. Under current strategic-investor rules, foreign banks are capped at 15% shareholding, but Malhotra noted that the overall FDI limit of 74% already includes more flexibility. A regulatory revision could align voting rights and equity thresholds at 26% across the board
🔍 4 Key Insights Behind the Move
1️⃣ Aligns equity and voting rights
Currently, equity is capped at 15% for strategic foreign investors, while voting rights are allowed up to 26% under the Banking Regulation Act. Aligning both simplifies structure and removes inconsistencies
2️⃣ Signals growing openness
Malhotra emphasized the importance of attracting “well‑governed” foreign banks to support credit growth. He noted that denying a 26% stake “defies logic,” and RBI has already approved exceptions—like SMBC’s application to buy 25% in Yes Bank
3️⃣ Could boost capital inflows
India’s banking sector requires long-term capital. Reviews like easing the 15% cap—currently an obstacle to deeper foreign ownership—could attract robust global investors like SMBC, Emirates NBD, and Fairfax
4️⃣ Regulatory and legislative steps needed
Though RBI can revise internal policy, raising the voting-rights cap may need legislative updates via finance ministry collaboration. RBC is reviewing norms comprehensively, mindful of conflict-of-interest rules regarding conglomerates Reuters.
🔭 What to Expect Next
- Formal policy update: RBI expected to clarify new shareholding and voting thresholds soon.
- Case-by-case approvals: Approvals may still be granted on merit, especially for foreign banks with strong governance.
- Stakeholder response: Watch for Indian bank promoters, market analysts, and trade bodies responding to reforms.
- Investor interest: Global banks keen on India’s growth potential may initiate approval requests after policy clarity.
✅ Bottom Line
RBI is preparing to raise the foreign bank stake limit from 15% to 26% in Indian banks—a move that can simplify rules, attract capital, and support the financial sector’s expansion. Finalizing the alignment of ownership and voting thresholds will require both regulatory and legislative coordination, but signals a clear shift toward greater openness in India’s banking framework.
