Reserve Bank Opens Privatisations to Foreign Investors

The government's disinvestment plan for FY 2024-25, reportedly for $59.8 million, has a special focus on the banking sector. IDBI Bank, formerly a public-owned bank, is a significant test case for the New Public Sector Enterprises Policy, which aims to boost the private sector's capacity to foster business expansion in the banking sector.

Other than IDBI, the government announced its plan for the privatisation of two public sector banks in 2021, without giving a timeline in Budget 2024-25.

NITI Aayog, an Indian think tank, had also proposed privatisation of the Indian Overseas Bank and the Central Bank of India (not to be confused with the Reserve Bank of India (RBI), which is the central bank). However, no concrete decision has been made yet.

The Reserve Bank of India allows up to 74% of Foreign Direct Investments (FDI) in private-sector banks in India and 20% in public-sector banks.

To invest in public sector banks, obtaining a ‘Fit & Proper’ certificate issued by the RBI is mandatory. Fairfax Financial, Emirates NBD, and Kotak Mahindra Bank have secured ‘Fit & Proper’ certificates from the Reserve Bank of India (RBI) paving the way for their possible acquisition of IDBI bank.

However, In 2023, public sector banks reported a net profit of around $12.6 million, a 35% year-on-year growth rate. In 2019, these banks had lost $8 million.

According to, S&P Global Market Intelligence, foreign institutional investments as of 2023 in public and private banks stand at over $100 billion, up from $92 billion in the year before.

US-based Capital Research and Management Co. sits atop the list of foreign investors in Indian banks by market value, leveraging its more than 6% stake in Kotak Mahindra Bank, its value of holdings in Indian banks stands at $6.48 billion.

It is followed by BlackRock Inc. and Singapore's GIC Private Ltd in the race for the biggest foreign investors in the Indian banking landscape.

JP Morgan and Bloomberg recently announced India’s inclusion in its Global EM Bond Index and EM Local Currency Government indices. This is projected to attract foreign investments of around $30-40 billion over the next five years and free up an equivalent amount of domestic capital for the private sector.

Japan's Sumitomo Mitsui Financial Group (SMFG) invested $15.5 million in SMFG India Credit Co Ltd, while Mitsubishi UFJ Financial Group (MUFG) has made significant investments in Indian non-bank lenders, including DMI Finance. MUFG’s interest in acquiring a 20% stake in HDB Financial Services further underlines India's attractiveness to global investors.

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