The Department of Industrial Policy and Promotion (DIPP) has sent a proposal to hike the FDI limit in the private banking industry to the Department of Financial Services for its comments, sources said.
Currently, 74 percent FDI is permitted in the private sector banking, of which up to 49 percent is allowed under the automatic route and beyond that through the approval of the Foreign Investment Promotion Board (FIPB).
However, portfolio investments in the banking sector can go up to 49 percent.
The move will help the existing private sector banks, payments banks and small finance banks tap overseas markets to enhance their capital base. RBI has recently given in-principle approval to 11 entities to set up payments banks and 10 for small banks.
Recently, the government has introduced the concept of composite caps. But given the sensitivities in the sector, the government has said foreign institutional investors (FIIs) cannot exceed the cap prescribed for portfolio investments in private sector banks.
Private lender HDFC bank has already got government approval to raise foreign investment limit to 74 percent.
The government is taking several steps to boost FDI and has relaxed FDI norms for sectors such as medical devices, defence and construction activities.
During April-June of this fiscal, foreign direct investment into the country grew 31 percent to USD 9.50 billion.

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