Rules under review on 26% stake by foreign banks in Indian lenders, says RBI Governor

RBI Governor Sanjay Malhotra

RBI Governor Sanjay Malhotra on Tuesday said that the Reserve Bank is open to allowing foreign banks to hold up to 26% stake in Indian lenders, subject to existing policy norms. While no such proposals have reached the RBI yet, Malhotra clarified that there is no bar under the current Foreign Direct Investment (FDI) policy.

“As per the FDI policy, the foreign banks are allowed up to 74%. Foreign banks can certainly have 26% stake in an Indian bank,” Malhotra told CNBC-TV18 in an exclusive interview, adding that voting rights, however, cannot exceed 26% as per the Banking Regulation Act.

The comment comes amid interest from global lenders such as SMBC in Yes Bank and NBD in RBL Bank. Currently, RBI has allowed such higher shareholding only in distressed bank takeovers like DBS’s acquisition of Lakshmi Vilas Bank.

“We’ve not received any case where a foreign bank wants to own 26% of Indian banks. But if they come, we are already reviewing the policy,” Malhotra said.

He also said that some corporate groups “have deep pockets” and that “the banking industry… needs capital, whether it is the existing banks or the new banks.” However, he cautioned that “conducting financial business and real economic activities within the same group has a conflict of interest,” adding that this concern remains “equally valid and equally relevant, even today.”

Currently, foreign investors can own up to 74% in private sector Indian banks, with 49% allowed automatically. However, a single foreign entity is usually capped at 15%, unless the RBI allows a higher stake on a case-by-case basis.

These rules help keep ownership spread out and prevent too much control by one player. Now, the RBI is reviewing these norms and may allow regulated foreign banks or institutions to hold larger stakes—possibly up to 26%—under a more open policy instead of clearing each request individually.

He also acknowledged there may be some ambiguity in the current guidelines. Malhotra indicated the central bank may consider a broader policy review instead of dealing with such requests only on a case-by-case basis.

“These are matters of detail which we will work out,” he said.