The Indian government is contemplating a policy revision that would permit up to 49% foreign direct investment in its public sector banks, doubling from the existing 20% threshold, reported Reuters, citing sources who are directly involved in policy discussions.

According to a source, ongoing discussions between the finance ministry and the Reserve Bank of India (RBI) have been taking place over the past few months, with the proposal still in the stages of refinement and not yet officially approved.

The enhancement of the foreign investment ceiling is expected to attract additional capital for state-owned banks in the future, the source added.

Another source confirmed that deliberations are underway to raise the limit, which would also serve to standardise the regulatory framework for both state-owned and private sector banks.

In contrast to public banks, private banks in India can currently have foreign ownership of up to 74%.

The source said that the government plans to maintain a majority stake of at least 51% in these banks.

While the RBI has been easing banking regulations and showing a willingness to allow more foreign stakes in Indian private banks, it is expected that certain precautions, such as a 10% voting rights limit for any single shareholder, will continue to be enforced to prevent disproportionate control.

According to Reuters, India's economic performance, with an average growth rate of 8% over the last three fiscal years, has driven an increased demand for credit, enhancing the appeal of its banking industry.

The financial sector has seen a significant uptick in activity, with deal values soaring by 127% to $8bn in the period from January to September.

The country has 12 state-owned banks, which collectively hold assets of Rs171tn ($1.95tn) and account for more than half of the banking sector's total.

India's banking sector is experiencing heightened global interest. Recently, Emirates NBD acquired a 60% stake in RBL Bank for nearly $3bn, and Japan’s Sumitomo Mitsui Banking Corporation increased its stake in Yes Bank with a 20% purchase in May, followed by an additional 4.2% in September.