The central government is actively discussing a substantial set of banking reforms designed to modernise and strengthen India's public sector banks. One of the headline proposals is to raise the foreign direct investment (FDI) cap in state-run banks from the current 20% to as much as 49%, a move aimed at attracting significant overseas capital and putting public sector lenders closer to regulatory parity with private banks, which already permit foreign ownership up to 74%. Additionally, there is a review underway regarding the longstanding 26% cap on voting rights for bank shareholders—a measure originally implemented in 2012 to prevent concentrated control by any single investor group.

The reform agenda reflects strong international investor interest in Indian banks and is intended to expand capital availability, re-balance the regulatory gap between public and private lenders, and address the sector’s growing credit needs amid robust economic expansion. If implemented, these changes could drive substantial capital inflows, support infrastructure and SME lending, and improve balance sheets of public banks, all while ensuring that the government retains a controlling stake (minimum 51%) and safeguards overall sector stability. The final contours, including specific voting rights adjustments and operational details, are subject to policy consultations and legal review.