Govt mulls hiking FDI cap in public sector banks to 49%

The government is considering to increase the foreign investment limit in public sector banks to 49 per cent from 20 per cent with a view to attract overseas inflows.
The Finance Ministry is looking into the proposal, sources said adding it may be announced in the forthcoming Budget 2016-17.
If the government accepts this proposal, it would lead to amendments in various Acts dealing with public sector banks to enable raising foreign investment limit.
Currently, 20 per cent foreign investment is permitted in the PSBs under government approval route.
Last year, the government had relaxed the foreign investment norms in private sector banks. It had introduced full fungibility of foreign investment and accordingly FIIs, FPIs, QFIs were permitted to invest up to sectoral limit of 74 per cent, provided there is no change of control and management of the investee company.

Earlier, portfolio investment was permitted up to 49 per cent in private sector banks.

The increase in foreign investment would result in flow of capital which public sector banks require urgently. Government can provide limited support to state-owned banks as resources are limited.
Last year, the government had announced a revamp plan 'Indradhanush' to infuse Rs 70,000 crore in state-owned banks over four years, while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel III.
As per the blueprint, PSU banks will get Rs 25,000 crore this fiscal and also in the next fiscal. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

"For the time being the priority is to start the lending
process," said the chief of BBB, that advises the government on top-level appointments at public sector lenders and ways to address the bad loans problem among other issues.
To a question over consolidation of banks, Rai said there are teams trying to work on it and it will be sorted out post April 1.
He said "if you saddle the banking administration with consolidation, which is a huge exercise by itself, it will create a lot of confusion".
"But at the same time there are teams outside the banks which are working and trying to see which are the best fits. But unfortunately, for public sector banks it is not purely on merit that consolidation will take place. You just can't make XYZ bank disappear let's say from Kolkata, the entire political establishment will be up in arms...

"So you have to ensure that consolidation process takes place where you take union along with you but more importantly the political environment around that area. So that kind of work is in progress. It will be sorted out. But it will be sorted out post April 1. Believe me the decision making, if you call it delay, it is not delay because a lot of thoughts are going into it. Because you cannot saddle financial institutions," Rai said.
Referring to a recent decision on takeover by State Bank of India with its associate banks, he said the SBI was picked up for reasons including the same working culture among its and other units.