Finance Minister P Chidambaram, however, insisted that it was not a "massive infusion" considering the size of the Indian economy.

"The capital brought by FIIs, which include banks and non-banking financial companies as of December 31, 2007 is about Rs 26,000 crore," he told the Rajya Sabha.

In the banking sector, he said, the government's policy was to allow healthy competition among public sector, Indian private sector and foreign banks.

"This will not only help expansion of the banking sector, but also improve efficiency and bring new products into the market," he said in reply to a question.

On rural lending by foreign banks, he said the government has not allowed such institutions to open branches in rural areas.

So far, foreign banks have opened branches only in tier 1 and large cities like Mumbai, Kolkata, Ahmedabad, Chennai and Noida, he added.

He said if these banks are allowed to open branches in rural areas, the government can ask them to follow the same guidelines that apply to Indian banks.

The government figures showed that paid up share capital of foreign banks stood at Rs 17,630 crore (Rs 176.30 billion) in December 2007, up from Rs 13,079 crore (Rs 130.79 billion)  in March, while their tier 1 and tier 11 capital rose Rs 40,892 crore (Rs 408.92 billion) from Rs 33, 134 crore (Rs 331.34 billion) in the same period.