Centre may retain 10% voting cap in PSBs despite foreign investment review: Report

As of 30 June, foreign institutional investors held between 4.55% and 11.38% in the six largest PSBs, with negligible participation from foreign corporations.

The central government is likely to maintain the 10% voting rights limit for investors in public-sector banks (PSBs), even as it consults the Reserve Bank of India (RBI) on reviewing foreign investment ceilings in these institutions to attract more capital, according to two individuals familiar with the development, The Mint reported.

Currently, the government is required to hold a minimum 51% stake in PSBs, while foreign investment is restricted to 20%. However, regardless of the total shareholding by any individual or institution, voting rights in PSBs remain capped at 10%.

One of the sources told The Mint that even if authorities decide to increase the foreign investment cap beyond 20%, voting rights are expected to stay limited to 10%. This move, the person explained, is intended to preserve the public nature of these banks, ensuring that private and overseas shareholders cannot exert control over the management or influence board-level decisions.

As of 30 June, foreign institutional investors held between 4.55% and 11.38% in the six largest PSBs, with negligible participation from foreign corporations. Individual investors, including mutual funds and corporate entities, also hold less than 10% stakes in these banks. Nonetheless, the government aims to restrict their influence by retaining the cap on voting rights.

The report further highlights that voting rights in private banks are also regulated—promoters can exercise a maximum of 26%, and financial institutions can hold up to 15% equity. Promoters are expected to gradually reduce their stake to 26% over a 15-year period, while the cap for individual and non-financial investors is 10%. The RBI is currently examining these norms to make private banks more appealing to investors.

A senior official from a PSB, speaking anonymously to The Mint, noted that unlike private banks, state-run banks play a greater role in promoting financial inclusion and public welfare. “Maintaining a cap on voting rights is crucial for PSBs to fulfill these responsibilities,” the official said.

The second person cited in the report mentioned that while the RBI is in the process of evaluating foreign ownership rules for private banks, decisions on PSBs will follow. They also clarified that there has been no active discussion on changing the voting rights framework, although proposals have emerged suggesting alignment between voting power and shareholding.

Neither the Ministry of Finance nor the RBI responded to The Mint’s queries.

Vivek Iyer, Partner and Leader of Financial Services Risk at Grant Thornton Bharat, told The Mint that the government’s reform-driven approach—rather than relying solely on public funding—necessitates fresh capital for PSBs. Raising the foreign investment limit is an effective step toward that goal. “While voting rights may not need immediate revision, a gradual shift toward higher voting rights could enhance governance quality,” he added.