The Reserve Bank of India (RBI) is reviewing its rules on the stake that different types of investors, especially foreign banks, can hold in Indian lenders. One of the major proposals under discussion is to allow foreign banks to own up to 26 per cent stake in Indian banks.
Presently, foreign investors, including portfolio investors, are allowed to own up to 74 per cent stake in Indian banks. However, if a foreign investor is categorised as a ‘strategic investor’, their ownership is limited to 15 per cent. Raising the cap to 26 per cent can potentially open the door to more meaningful foreign involvement in Indian banking.
In an interview with CNBC-TV18, RBI Governor Sanjay Malhotra said the central bank is considering whether this higher threshold can be made a general policy instead of being approved only in special cases. This suggestion will be a part of a wider review of bank ownership norms.
Such Rules Could Boost Investment
RBI’s aim is to simplify existing rules and offer clarity for long-term investors. If approved, this change may help attract more strategic foreign capital into the Indian banking system. The central bank is expected to keep a close eye on financial stability while making any such changes.
The RBI governor was also asked whether large Indian business groups may be allowed to own banks. Malhotra said that combining core business operations with banking could create conflicts of interest. Indicating that norms restricting business conglomerates from owning banks are unlikely to change.
Liquidity Framework Review in Progress
In addition to the ownership review, RBI is also looking into its liquidity management framework. An internal committee has completed a review of the current system, and is scheduled to share its findings by the end of this month. The outcome could lead to changes in how RBI manages the supply of money in the financial system to ensure market stability.
Retail Inflation at Six-Year Low
India’s retail inflation slowed to 2.1 per cent in June, the lowest it has been in over six years. This was largely driven by a drop in food prices, particularly vegetables, supported by a good monsoon season. Inflation was 2.82 per cent in May and 5.08 per cent in June 2024. The overall trend has been downward since November last year.
Malhotra, in his CNBC-TV18 interview, added that RBI may consider lowering interest rates if inflation stays below forecasts or if economic growth slows. The monetary policy committee will evaluate all factors before deciding on future rate cuts.
