The government's high-level committee on banking for Viksit Bharat is likely to review the 26% voting rights cap in banks under the Banking Regulation Act, 1949, as part of efforts to attract long-term strategic and foreign capital into the sector.
The proposed panel, yet to be formally constituted, is expected to include officials from the Reserve Bank of India and senior executives from large public sector banks. Its terms of reference are likely to be finalised over the next three months.
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Any move to raise the voting rights cap beyond 26% would require a legislative amendment, with changes to the Banking Regulation Act possibly being considered in the upcoming session of Parliament.
The voting rights restriction has been flagged as a key hurdle in the privatisation of IDBI Bank, where potential investors have sought greater control commensurate with their shareholding. Foreign banks and investors have also been pushing for a review of the cap.
Currently, foreign investors can hold up to 74% aggregate stake in Indian private banks -- 49% through the automatic route and the rest via government approval -- but voting rights remain capped at 26% regardless of shareholding.
The panel is expected to examine ways to make India's banking sector more globally competitive, with a broader goal of enabling at least two Indian banks to break into the world's top 20 by size.
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