FDI in State-Run Banks Could be Raised to 49 percent

The Narendra Modi government is considering allowing 100 per cent foreign direct investment (FDI) in private banks, CNBC-TV18 reported on Wednesday. Furthermore, the government is also considering raising the permissible limit for FDI in state-run banks to 49 per cent, from 20 per cent at present, unnamed sources told the news channel.

The proposed changes are reportedly being debated by the Finance Ministry, the Department of Industrial Policy and Promotion (DIPP) and the Indian Banks’ Association (IBA). Meanwhile, KC Chakrabarty, a former deputy governor at the Reserve Bank of India (RBI), told the news channel that even with 100 percent FDI, central bank regulations prevent a single entity from invest in excess of 10 per cent in a bank. Raising the permissible limit for FDI in India’s banking sector could help meet minimum capital requirements and improve services. As of now, FDI of up to 49 per cent is allowed in private banks without the permission of the government. However, up to 74 per cent can be invested with government consent.

Rising non performing assets (NPAs) are a matter of concern in the banking sector. State-run banks’ non-performing assets stood at around Rs 7.34 lakh crore at the end of the second-quarter of the ongoing financial year, a majority of which came from corporate defaulters, according to RBI data. Private sector banks’ non-performing assets stood at about Rs 1.03 lakh crore as on 30 September 2017. The government has said that leading corporate houses and firms accounted for some 77 per cent of gross NPAs from domestic operations for banks.