Global Banks Show Increased Interest in Indian Lenders
Global banks have begun to show a growing interest in acquiring stakes in Indian lenders. This trend has emerged as the country’s government and regulators are becoming increasingly relaxed about foreign entities holding significant stakes in Indian financial institutions. Here is the source of this information.
According to data from Dealogic, India’s financial sector has seen an impressive $8 billion worth of deals from foreign companies since the start of the year. This is a significant increase from the previous years – $2.3 billion last year and $1.4 billion in 2023.
What’s Driving this Trend?
There are several factors contributing to this surge in foreign investments. One of the key factors is the investor confidence in India’s economy. The recent transactions have “opened up a new chapter” in Indian banking, according to analysts at Mumbai-based Motilal Oswal Financial Services.
Moreover, officials in India have laid out ambitions to consolidate the financial sector. Finance Minister Nirmala Sitharaman mentioned this month that the government is keen on creating more “big banks”. The central bank is also reviewing its policies, and considering relaxing a 15 per cent shareholding cap by any single foreign investor in a non-government-owned lender.
The largest cross-border deal this year was the $3 billion acquisition of a 60 per cent stake in the mid-sized bank RBL by Emirates NBD, Dubai’s largest lender. Japan’s Sumitomo Mitsui Financial Group also bought a 24.2 per cent stake in Yes Bank for about $1.7 billion, making it the largest shareholder.
Who are the Key Players?
Among the key players showing interest in India’s financial groups is Mitsubishi UFJ Financial Group (MUFG), Japan’s largest lender by assets. MUFG is in advanced talks with several non-banking financial groups for the purchase of a large stake. Although there have been reports of negotiations between MUFG and Chennai-based Shriram Finance for a 20 per cent stake worth $2.6 billion, the deal is still not finalised, and MUFG is exploring other options.
What Attracts Foreign Banks to India?
The trend of foreign banks investing in India’s financial groups is largely driven by the country’s robust economic growth. Yatin Singh, CEO of investment banking at Emkay Global Financial Services in Mumbai, noted that likely targets included a handful of public sector banks that the government would like to privatise.
India is viewed as an attractive option for mature economies like Japan that have an ageing population and capital that needs to be deployed in a way where the risk-adjusted return makes sense.
Investors are targeting mid-sized banks that are easier to acquire and have more room to grow. Shadow banks are also gaining interest after the Reserve Bank of India (RBI) eased restrictions put in place in 2023 in response to a post-pandemic credit binge that left many households in debt.
“There’s enough credit demand,” said Singh at Emkay. “Whichever [lending] segment you pick up, you’d find a very, very large opportunity over the next 15, 20, 25 years. Anyone who’s buying a bank in India is taking, I’m sure, a 50-year view.”
Conclusion
Foreign investment in India’s financial sector is set to grow as the country’s economy continues to thrive. The relaxation of regulations, the potential for growth, and the government’s openness to privatisation are all factors that make the Indian financial sector an attractive investment opportunity for global banks.
