RBI Governor hints at allowing foreign banks to own 26% in Indian banks
Mumbai, Jul 15, 2025
Transmission is happening well: RBI Governor
The interest rate cuts since February have been transmitted well to lending rates, and any future reduction in policy rates will depend on the growth and inflation outlook, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Tuesday.
He also indicated that the regulator might allow foreign banks to own up to a 26 per cent stake in Indian banks.
Following a cumulative 50-basis-point (bp) rate cut between February and May, Malhotra said the transmission to new loans had been 24 bps until May, while it was 16 bps for outstanding loans.
“I reviewed the figures (on transmission) recently and I would like to inform you that transmission is happening well,” he told CNBC-TV18.
In June, the RBI’s six-member rate-setting panel cut the policy repo rate by another 50 bps, bringing it down to 5.5 per cent. While announcing the rate cut in June, the central bank shifted its policy stance to neutral.
“It (neutral stance) gives us the flexibility to move upwards or downwards, depending on how the outlook evolves,” Malhotra said.
“The MPC, as always, will factor in the evolving situation and the outlook. And then take a call as to whether the economy really needs… what kind of a policy rate it needs. If the inflation is lower, therefore the outlook is lower, growth or the growth outlook is lower, certainly, the policy rates can be cut. But that is something we have to wait and watch,” he said, reiterating that the RBI would continue to be data-dependent and to look at the incoming data.
Rahul Bajoria, head of India and Asean Economic Research at Bank of America, agreed that the RBI has the flexibility to move in either direction depending on incoming data. “Inflation being low is not new information, but if growth is much weaker than forecast, we could see the RBI take a more dovish line. So far, we do not see signs of that, and we expect August to be a hold,” Bajoria said.
Malhotra indicated the regulator is open to allowing foreign banks to have 26 per cent stake in Indian banks.
“For foreign banks, they can go up to 100 per cent. So, if you don't allow them even 26 per cent, that seems to defy logic,” he said. In the past, the RBI had allowed foreign banks to take significant stakes in Indian banks. For example, DBS Bank’s India unit was permitted to acquire Lakshmi Vilas Bank, an old-generation private-sector lender. Similarly, Fairfax was allowed to acquire a 51 per cent stake in CSB Bank (formerly Catholic Syrian Bank).
“We will be okay in allowing them, whether it is on a case-by-case basis, whether it is as a general matter of policy. These are matters of detail, which will work out,” he said.
Recently, Japan’s SMBC signed an agreement to acquire 20 per cent in private-sector lender Yes Bank, subject to regulatory approval.
On whether conglomerates would be allowed to own banks, Malhotra pointed to the fact that a business house that is also into financial services may have conflict of interest.
“Let us also keep in mind that conducting both financial business and real economic activities within the same group has a conflict of interest. I would say this counter-argument remains equally valid and relevant even today,” he said.
[The Business Standard]
