PSU Bank Stocks Slide as Government Rules Out FDI Limit Hike

Public sector bank stocks came under heavy selling pressure on Wednesday after the Union Government clarified that it has no proposal to increase the foreign direct investment (FDI) limit in state-owned banks.

The Nifty PSU Bank index fell 3.04% to 8,255.75, with losses across all major lenders.

Indian Bank was the biggest loser, plunging 6.14%, followed by Punjab National Bank which dropped 4.35%, and Canara Bank, down 4.10%.
Bank of India declined 3.69%, Bank of Baroda fell 3.07%, and Union Bank of India slipped 2.70%.
Among others, Central Bank of India lost 2.65%, Punjab & Sind Bank dropped 2.40%, and UCO Bank eased 2.12%.
The country’s largest lender State Bank of India dipped 1.47%, Bank of Maharashtra was lower by 1.46%, and Indian Overseas Bank fell 1.14%.

The sharp correction came after a written reply in Lok Sabha to questions from MPs Ranjeet Ranjan and Haris Beeran, who had asked whether the government intended to raise the FDI cap in PSU banks to 49%, and what impact such a move could have on foreign inflows and ownership patterns.

The Finance Ministry stated clearly that no such proposal is under consideration. It reiterated that the current regulatory structure—under the Banking Companies Acquisition and Transfer of Undertakings Act (1970 & 1980) and FEMA Non-Debt Instruments Rules, 2019—sets the FDI limit at 20% for public sector banks, compared with 74% for private sector banks.

Of the 74% limit applicable to private banks, FDI up to 49% is allowed automatically, while investments between 49% and 74% require government approval.

The Ministry also highlighted RBI norms mandating prior approval for any acquisition that results in an investor holding 5% or more of a bank’s paid-up capital or voting rights.

The clarification cooled recent speculation about potential liberalisation of ownership norms in PSU banks and triggered profit-taking across the sector, dragging the entire index lower.