SBI, other PSU banks stocks rise up to 3% on reports of government move to raise FDI limit to 49%

Synopsis

PSU bank stocks rose up to 3.3% after reports said the government may raise foreign investment limits to 49% in state-run banks, more than double current caps. The finance ministry and RBI are in talks, aiming to align rules with private banks, where foreign ownership is allowed up to 74%.

Shares of public sector banks such as State Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, Indian Bank among others gained up to 3.3% after a Reuters report stated that India is planning to allow direct foreign investment in state-run banks of up to 49%, more than double current limits.

The finance ministry has been discussing the matter with the Reserve Bank of India (RBI), the country's banking sector regulator, over the past couple of months, said the report, adding that the proposal is yet to be finalised.

The move is also part of an attempt to narrow the gap between regulations for government-owned and private banks. India allows foreign ownership of up to 74% for private lenders.

The development gains significance as foreign investment in the banking industry is on the rise. Earlier this month, Emirates NBD grabbed attention with its announcement of a Rs 26,853 crore investment in RBL Bank for up to 60% ownership, including an open offer — the largest-ever foreign investment in India’s financial services industry. Soon after, Federal Bank, based in Kerala, approved a Rs 6,196 crore issue of convertible warrants to a Blackstone affiliate, paving the way for the private equity firm to acquire up to a 9.99% stake in the lender.

The year began with a major move from Japan’s Sumitomo Mitsui Banking Corporation (SMBC), which in May acquired a 24.2% stake in Yes Bank through two tranches worth nearly Rs 15,000 crore. Around the same time, IDFC First Bank raised Rs 7,500 crore from Warburg Pincus and another Rs 2,624 crore from the Abu Dhabi Investment Authority (ADIA), resulting in a 10% equity dilution.

In the non-banking financial space, Abu Dhabi’s International Holding Company (IHC) committed $1 billion (Rs 8,850 crore) to Sammaan Capital, combining shares and warrants for up to a 41% stake, which also triggered a mandatory open offer. Meanwhile, Mitsubishi UFJ Financial Group (MUFG) is reportedly in advanced discussions to acquire as much as a 20% stake in Shriram Finance for approximately $2.6 billion, according to a report by The Economic Times earlier this month.

SBI shares gained over 1% to their day’s high of Rs 936 per share. Bank of Baroda gained 1% to their intra-day high of Rs 277 in morning deals. Canara Bank shares rose over 2% to Rs 132 per share on the NSE. Indian Bank touched a day high of Rs 854, higher by 3.3% from the last close. Union Bank of India rose 2% to Rs 148 per share.

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