A spate of billion-dollar deals—including those involving Yes Bank Ltd. and RBL Bank Ltd.—have thrust India’s financial sector into the global spotlight, when credit worries at US regional banks have rattled investors globally.
Over the weekend, Emirates NBD Bank PJSC said it plans to invest $3 billion in RBL Bank, marking the biggest foreign investment in India’s banking sector. Earlier this month, Abu Dhabi’s International Holdings Co. PJSC inked a deal to buy Sammaan Capital Ltd. for about $1 billion. In May, Sumitomo Mitsui Financial Group Inc.’s banking unit agreed to pay $1.6 billion for 20% of Yes Bank Ltd.
All told, about $15 billion of deals involving financial services targets in India have been struck this year, Bloomberg data shows, as global investors scour for opportunities in one of the world’s fastest-growing major economies. This builds on the momentum of prior years to invest in lenders, insurance and fintech players.
The exuberance to what’s happening elsewhere is striking.
Recent US collapses of Tricolor Holdings and First Brands Group have stoked fears of hidden credit losses. India itself is trying to work things out with the US after it was slapped with 50% tariffs that could hit its growth.
There also isn’t a track record of triumph by overseas buyers, as the sector remains dominated by well-entrenched local players and had struggled with a shadow bank crisis less than a decade ago.
“The success story of foreign banks acquiring Indian banks is very limited” and has not always reflected in profit and revenue growth, independent research analyst Hemindra Hazari said. 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, he said.
Positives Amid Negatives
Indian lenders look relatively more insulated, and are gaining from rapid digital adoption, government moves, as well as a large unbanked population. Japan’s megabanks have been outspoken about their appetite for Indian assets, while deep-pocketed firms from the Middle East and Europe are now setting their sights on the expanding middle class in Asia’s third-largest economy.
“The Indian growth story has been accepted globally,” RBL Bank’s CEO R. Subramaniakumar said at a briefing on Sunday. He pointed out that a stable financial system and robust regulators add to the appeal.
A slate of decent earnings for the sector and the prospect of more deals have supported share prices recently. The Nifty Financial Services Index climbed to an intraday record on Monday. Shares of RBL Bank rose as much as 8.4% to the highest since February 2020.
RBI Banking Norms
The Reserve Bank of India has moved in recent years to strengthen the financial sector via measures aimed at boosting credit flow, encouraging lending and financing. The regulator has also clamped down on excessive risk-taking, frequently warning shadow lenders about pursuing growth at any cost and vowing to take action if they don’t strengthen risk controls.
The steps come after the sector blew up about seven years ago when a pile-up of bad loans weighed on growth. This led the government to overhaul bankruptcy laws and recapitalise state-owned banks.
Now, policymakers are exploring ways to attract more foreign investment, including discussing options to make it easier for overseas investors to raise stakes in state-run banks and allowing large companies to apply for banking licenses, Bloomberg News reported earlier.
Bank Deals In India
Recent set of earnings from industry heavyweights HDFC Bank Ltd. and ICICI Bank Ltd. saw both lenders reporting better-than-expected results driven by lending growth, even as interest margins remain under pressure. The 12-member Nifty Bank Index has rallied more than 13% this year, closing at a record high on Friday.
More jumbo deals could follow. A planned government stake sale in IDBI Bank Ltd. is expected to fetch billions. Japan’s Mitsubishi UFJ Financial Group Inc. is actively hunting acquisition targets, and is said to be in advanced 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 minimise them,” said Vivek Ramji Iyer, partner and leader in financial services practices at Grant Thornton Bharat. “India’s domestic focus and low correlation with the global economy make it a lucrative entry point.”