As India warms to foreign banks, Sangh's unease shadows the financial strategy

When the Union Finance Ministry issued a short statement on January 2, few would have paid attention. It said that an inter-departmental committee, chaired by Department of Financial Services secretary M. Nagaraju, had met to consider proposals from the Reserve Bank of India (RBI) for foreign banks to open branches, representative offices and subsidiaries in India.

The meeting included officials from the Ministries of Home, External Affairs and Commerce, who evaluated each proposal from security, diplomatic and economic angles. After deliberation, the committee recommended the proposals.

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The note may have looked bureaucratic, but it marks a quiet policy shift. The timing is also crucial as finance minister Nirmala Sitharaman’s ministry is also fine-tuning the draft of Union Budget 2026-27. The brief her ministry has got from the political leadership is to make the Budget a pathbreaking one.

For nearly a decade, India had slowed the pace of foreign bank expansion, arguing that domestic institutions were still recovering from non-performing asset (NPA) shocks. Now, with public sector banks profitable and financial stability restored, the sense coming out of government quarters is that India can afford to open its gates a little wider, albeit selectively.

At the heart of this new openness is confidence. India’s banking system is in its strongest position in years. Public sector banks posted a record Rs 1.78 lakh crore in combined net profit in 2024-25, reflecting not just operational recovery but structural reform. Asset quality has improved sharply, with gross NPAs in public sector banks falling to about 2.6 per cent and net NPAs below 0.6 p