UPSC Prelims 2003 Q96: Indian Economy – Banking & Financial Sector
Consider the following statements:
1. The maximum limit of shareholding of Indian promoters in private sector banks in India is 49
per cent of the paid - up capital.
2. Foreign Direct Investment up to 49 per cent from all sources is permitted in private sector
banks in India under the automatic route.
Which of these statements is/are correct?
- (a) Only 1
- (b) Only 2
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (c) Both 1 and 2
Explanation
> Note for students: FDI limits for private banks changed in 2004 (to 74%); the answer keyed here follows the position in 2003.
Shareholding and FDI in private sector banks
| Statement | Verdict |
|---|---|
| 1. Indian promoters' maximum shareholding is 49% | True as accepted for the period |
| 2. FDI up to 49% from all sources under the automatic route | True — as per the 2001 policy |
Both statements are accepted as correct for the period.
Answer: (c) Both 1 and 2.
Why each option is right or wrong
- (a) Incorrect. Statement 2 is also correct.
- (b) Incorrect. Statement 1 is also correct.
- (c) CORRECT. Both statements are accepted as correct.
- (d) Incorrect. Both statements are correct.
Key point
Private banks: FDI cap raised to 74% in 2004 (automatic up to 49% earlier).
Remember
FDI up to 49% in private banks was under the automatic route in 2003.
Common mistakes
- Quoting today's 74% cap for 2003.
- Thinking FDI needed approval up to 49%.
- Mixing public sector bank limits (20%).
Exam tip
FDI limits change; check the year of the question.
Sources
- Reserve Bank of India — Annual Report 2002–03 (foreign investment in private sector banks)
- Banking Regulation Act, 1949, Section 12 (regulation of paid-up capital, subscribed capital and voting rights)