RBI open to foreign banks holding up to 26% in Indian lenders, says Governor Sanjay Malhotra

While no formal proposals have been received so far, Malhotra clarified that there is no restriction 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 said in an exclusive interview with CNBC-TV18.

He added that voting rights remain capped at 26% in accordance with the Banking Regulation Act.

The RBI’s stance comes amid interest from global lenders such as Sumitomo Mitsui Banking Corporation (SMBC) in Yes Bank and Emirates NBD in RBL Bank.

So far, higher foreign ownership has only been permitted in special cases like DBS’s takeover of Lakshmi Vilas Bank during a crisis.

“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 noted.

Commenting on domestic investment, Malhotra acknowledged that some corporate groups have significant financial capacity.

“The banking industry… needs capital, whether it is the existing banks or the new banks,” he said. However, he warned that allowing industrial houses to operate both financial and core business activities under one group poses a conflict of interest. “That concern is equally valid and equally relevant, even today,” he added.

Currently, foreign investors can own up to 74% in private Indian banks, with automatic approval granted for up to 49%.

Typically, a single foreign entity is limited to a 15% stake unless the RBI grants an exception.

These norms are designed to ensure dispersed ownership and avoid concentration of control.

However, the central bank is now considering a more open policy that would allow regulated foreign banks and institutions to hold up to 26% without seeking approval each time.

Malhotra acknowledged some grey areas in the current guidelines and suggested that the RBI could undertake a broader policy review. “These are matters of detail which we will work out,” he said.