Centre may raise FDI limit in PSU banks, decision within 3-4 months: Sources

The central government and the Reserve Bank of India (RBI) are deliberating on raising the foreign direct investment (FDI) limit in the country's public sector commercial banks, with talks to double the threshold from the current 20 per cent to 40 per cent, sources told Zee Business.

Decision on PSU bank FDI limit revision in 3-4 months

A decision on the FDI limit is expected within the next 3-4 months, they said.

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However, the FDI cap for single entities will continue to be at 15 per cent. "No change is being considered in that regard," said one of the sources.

Until now, state-run commercial lenders have received FDI to the tune of 13-14 per cent.

Currently, a limit of 74 per cent exists on private sector commercial lenders.

A higher FDI limit in the country's state-run lenders -- such as State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) -- is set to lead to more capital for these banks and aid growth in the coming years.

There is growing demand for credit in India with rising per capita purchasing power as the country continues to maintain its position as the fastest-growing major economy.

India's gross domestic product (GDP) growth was recorded at a better-than-expected 7.8 per cent rate in the June quarter. Official data on GDP changes in the September quarter is due at the end of next month.

Currently, the country has 12 PSU commercial banks with their combined assets amounting to more than half of its banking sector.

The central government has a much higher shareholding in state-run banks than the minimum 51 per cent. Also, foreign ownership in many of these lenders ranges from 12 per cent in Canara Bank to almost zero in UCO Bank, shareholding data shows.

The RBI has taken a series of measures in the recent past to ease regulations in the overall banking space.

PSU bank stocks zoom

PSU bank shares surged in Monday's trade, with the Nifty PSU Bank -- whose 12 constituents include SBI, PNB and BoB shares -- surging the most among stock exchange NSE's sectoral gauges, at 2.2 per cent.

Nifty50 vs Nifty PSU Bank vs Nifty Bank in 1 year

As of October 27, the Nifty50 has risen 6.3 per cent in a year, while the Nifty Bank and Nifty PSU Bank gauges have rallied 13.4 per cent and 25.8 per cent, respectively.