A senior official said on Thursday there was no move to increase foreign investment limits in state-run banks from the current 20 per cent, dampening speculation of a change that has boosted bank shares this week.

"There is no move to increase the ceiling on foreign institutional investor holdings in state-run banks now," a senior official at the finance ministry said.

Speculation over a hike, which has been brewing for several months, got a fresh boost from a report in the Business Standard newspaper on Wednesday that the government would raise it in its national Budget, due near the end of February. Share prices of state-run banks have risen since the report was published.

Shares of State Bank of India, the country's largest commercial bank, rose 4.4 per cent to Rs 306.40 on Thursday, outpacing the Bombay Stock Exchange's benchmark top-30 share index, which rose 1.52 per cent.

Currently, foreign investors can purchase up to 20 per cent of the equity of state-run banks, including SBI.

This cap includes foreign direct investments and foreign portfolio or fund investments.

The government currently owns majority stakes in 19 state-run banks while the central Reserve Bank of India owns a majority stake in SBI. The SBI, in turn, controls seven associate banks.

For private banks, the foreign investment limits are higher, with a cap of 49 per cent set for FDI and foreign fund investments.

Banking stocks have caught investor fancy in the past two months after the government changed laws to help banks seize assets of defaulting borrowers.

Nearly all banks have reported increased earnings in recent quarters thanks to a strong growth in retail loans, where spreads can be twice the margins on loans to big business, and on bond trading profits as yields have tumbled.