What is the story about?
India’s banking sector is grabbing global attention, thanks to a wave of multi-billion-dollar deals, even as financial markets elsewhere face uncertainty.
With the US dealing with credit losses and trade tensions, investors are increasingly turning to India, one of the fastest-growing major economies, a Bloomberg report said.
Emirates NBD Leads With Record $3 Billion Deal
Over the weekend, Emirates NBD Bank PJSC announced plans to invest $3 billion in RBL Bank Ltd., aiming to take a 60% stake in the lender. This marks the biggest-ever foreign investment in India’s banking sector.
Earlier this month, Abu Dhabi’s International Holding Co. PJSC signed a deal to invest $1 billion in Sammaan Capital Ltd., and in May, Japan’s Sumitomo Mitsui Financial Group Inc. agreed to pay $1.6 billion for a 20% stake in Yes Bank Ltd.
Altogether, about $15 billion worth of deals involving India’s financial services sector have been made this year, according to Bloomberg.
Why Global Investors Are Interested
Despite a lack of success in the past, foreign investors see promise in India’s financial sector.
“The success story of foreign banks acquiring Indian banks is very limited,” said Hemindra Hazari, an independent research analyst.
“It hasn’t always reflected in profit and revenue growth. The large sums foreign investors are willing to invest shows intent, but whether they can build a profitable retail franchise in India’s competitive market remains to be seen.”
Still, India’s fast digital adoption, supportive government policies, and a large under-banked population are drawing attention.
“The Indian growth story has been accepted globally,” said RBL CEO R Subramaniakumar during a briefing.
He added that a “stable financial system and robust regulators” make India attractive to investors.
Stronger Rules, Stronger Banks
India’s banking system has improved since a crisis nearly seven years ago when bad loans piled up. In response, the government brought in bankruptcy reforms and recapitalised public sector banks.
The Reserve Bank of India (RBI) has also taken steps to boost credit, reduce risky lending, and tighten oversight on non-bank lenders. The RBI frequently warns against unchecked growth and insists on strong risk controls.
Now, policymakers are reportedly considering making it easier for foreign investors to own larger shares in state-run banks and may allow big companies to apply for banking licenses, according to Bloomberg News.
Big Banks Report Strong Earnings
Top private banks are also showing strong performance. Recent results from HDFC Bank Ltd. and ICICI Bank Ltd. beat expectations, thanks to loan growth, even though interest margins were slightly under pressure.
The Nifty Bank Index, which tracks major Indian banks, has gained over 13% this year, hitting a record high last Friday.
More Big Deals Likely
More large investments may be on the way. A government sale of its stake in IDBI Bank Ltd. is expected to bring in billions. Meanwhile, Japan’s Mitsubishi UFJ Financial Group Inc. is in talks to buy a stake in Shriram Finance Ltd.
“Geopolitical risks have accelerated financial and supply chain risks, and foreign investors are looking for alphas in countries that minimize them,” said Vivek Ramji Iyer, partner at Grant Thornton Bharat.
“India’s domestic focus and low correlation with the global economy make it a lucrative entry point.”
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