Shares in India's leading banks have jumped by as much as 20%, after the government relaxed its rules on foreign investment.

Under the country's investment rules, non-Indian firms were previously prevented from owning more than 20% of a local bank.

But the government raised that ceiling to 49% over the weekend, one of a series of measures taken recently to speed up privatisation.

On the Bombay Stock Exchange, shares in ICICI, India's biggest bank, rose by the maximum 10% allowed, and others bounced even higher.

Investors now hope that major foreign banks could seize the chance to build up their stakes in the fast-growing but tricky Indian market.

"If this had not happened foreign banks would have been left behind," Sampat Kumar of ABN Amro told the BBC's World Business Report.

"If you look at the many of the smaller (Indian) players, they are unable to grow for two reasons, they are unable to find a niche in the market and they are not finding the capital to grow."

Investment hopes

Although ICICI shares were reined in by market rules, the shares of smaller Vysya Bank and Bank of Punjab have jumped by 20%.

There is no shortage of potential foreign entrants to the market.

Dutch ING Group reportedly wants to raise its stake in Vysya from the current 20%.

And HSBC, Citibank and ABN Amro have all previously expressed their interest.

For larger firms such as ICICI, already listed on the New York Stock Exchange, the raised investment ceiling will provide a way to raise new capital.

Red tape slashed

In addition to simply raising the investment ceiling, the new ruling dramatically simplifies the red tape surrounding financial acquisitions.

Previously, foreign banks with branches in India - a group that includes Citibank - were not allowed to acquire Indian banks.

And there was confusion over whether portfolio investors, who only buy shares through the stock exchange, were classified in the same way as strategic investors.

The new rules aim to place all foreign banks on the same footing.