Foreign Investment in Indian Banking Sector: A Comparative Overview

Banking system is the pivot around which a nation's economy revolves. A healthy banking system is the backbone of any economy. The significance and role of banks in the growth and development of any economy is undisputable. This doesn't needs to be re-emphasized. The Indian banking system has transformed radically since the liberalization and 1991 reforms and today, Indian banks have travelled a long way, beyond its conventional areas of functioning. The openingup of the Indian banking sector for foreign participation was one of the key decision within a broader reform policy. Though the decision of entry of the foreign capital in the Indian banking sector was controversial, but it shows the dramatic change in the attitude of the policy-makers from conservative to a liberal one. Currently, India allows an aggregate foreign investment in private banks from all sources of up to a maximum limit of 74 percent of paid up share capital while this limit is capped at 20 percent for public sector banks. It has been more than a decade that the Indian banking sector was opened-up for foreign participation since 2005, thus, it becomes essential to investigate the emerging trends of foreign investment in the Indian banking sector. In light of this, the present paper adopts descriptive cum analytical approach to comparatively analyse the trends and pattern of foreign investment in the Indian banking sector since 2005.