Budget 2026: Experts urge review of voting rights cap in private sector banks

Amid the backdrop of Budget 2026, India may need to revisit long-standing restrictions on voting rights in private sector banks if it wants to build stronger lenders capable of supporting the country’s long-term economic ambitions, according to experts.

Vijay Mani, Partner and Banking and Capital Markets Leader at Deloitte India, and Russell Gaitonde, Partner, said the banking sector has become one of the most important pillars of India’s financial services industry and a key contributor to GDP. They noted that the BFSI sector’s market capitalisation has expanded sharply over the past two decades, rising from INR 1.8 trillion in 2005 to INR 9 trillion in 2025, reflecting its growing role in the economy.

"Under the current policy, FDI of up to 74 percent is permitted in private sector banks in India, with investments up to 49 percent allowed under the automatic route and any investment beyond this threshold requiring government approval," they said. "Additionally, there are various sub-limits prescribed in the exchange control regulations that apply to FDI in Indian private sector banks," the experts further added.

However, they pointed out that the Banking Regulation Act, 1949 restricts the voting rights of promoters in private sector banks to 26 per cent of total voting rights, regardless of their shareholding level. This cap applies equally to domestic and foreign investors. " The Banking Regulation Act, 1949, limits the voting rights of promoters of Indian private sector banks to 26 percent of the total voting rights in a bank, irrespective of their level of ownership in the bank. This voting right restriction applies uniformly to both domestic and foreign investors," they also said.

According to the experts, this limitation has historically discouraged foreign investors from taking majority or significant minority stakes in Indian banks, thereby limiting the sector’s ability to attract large pools of global capital.

“As the Indian economy grows to US 5 trillion by 2028 and US 30 trillion by 2047, it will require large and resilient Indian banks to support this expansion,” they said. “To this effect, it is important for the Government of India, in consultation with the Reserve Bank of India, to relook at the 26 per cent voting rights cap and align it with the ownership pattern of the shareholder," the experts recommended.