The liberalization of the Indian economy in 1991 marked a turning point in the country’s financial sector, opening the doors to foreign banking institutions and global capital flows. This paper explores the multifaceted impact of foreign banks on the Indian economy by analyzing their contributions to capital mobilization, technological advancement, financial inclusion, and competitiveness in the domestic banking landscape. Utilizing a secondary data-based approach, the study draws upon RBI reports, industry analyses, academic research, and financial databases to examine both the macroeconomic and sector-specific implications of foreign bank operations in India. While foreign banks contribute only a small percentage to the total number of branches in India, their influence on innovation, urban retail banking, and corporate financing is substantial. The paper discusses how these institutions have introduced global best practices, driven digital banking innovations, and enhanced service quality, particularly in metropolitan areas. However, it also highlights challenges such as limited rural outreach, profit repatriation, and regulatory concerns. Through comparative analysis with domestic public and private banks, the study finds that foreign banks have played a complementary role in shaping India’s financial ecosystem. The findings offer valuable insights for policymakers to develop a balanced regulatory framework that promotes foreign participation while safeguarding national financial interests.