India’s mid-sized banks: Armed with growth capital and ready to battle |
It would be fair to assume that there is a pattern to the exuberance of investments flowing towards some of India’s banks and non-banking financial companies (NBFCs), considering that seven deals were announced in 2025, five of these in the first seven months of FY26. One of these—the UAE-based Emirates NBD Bank investing approximately $3 billion (₹26,850 crore) into RBL Bank (see table)—when completed, will be the largest ever foreign direct investment (FDI) in the domestic financial services sector and the largest ever equity fund raise in the Indian banking sector.
In all, nearly ₹50,000 crore will be invested in four banks and Sumitomo Mitsui Banking Corporation (SMBC) will buy out the stake of State Bank of India and other banks in Yes Bank to become its largest shareholder with a 24.99 percent stake. Add to this, in March 2025, private equity giant Bain Capital announced a move to get joint control in Kerala’s gold financier Manappuram Finance, and Bajaj Group bought back stakes in existing insurance joint ventures with Allianz.
So is India’s financial sector the most sought-after amongst global economies for capital providers?
Capital providers have always been willing to look at India favourably. Between 2002 and 2008, there were several deals, though smaller in size. Amsterdam-headquartered ING had hiked its stake in ING Vysya Bank to near 43 percent in 2002 before ING Vysya Bank was acquired by Kotak Mahindra Bank in 2015. Temasek Holdings acquired a stake in ICICI Bank in 2003, before nearly selling the entire stake by 2012 and Rabobank acquired a near-20 percent stake in Yes Bank in 2004, before paring it down and finally exiting India in 2021.
But somehow, “the regulatory comfort was not present at that time”, a banking research analyst tells Forbes India, on condition of anonymity, speaking about the Reserve Bank of India’s (RBI) approach to foreign capital into India’s banks. Earlier it seemed policy makers were not ready to welcome more players or they were not able to ring fence and monitor them better. The RBI, has, since 2017, flexed its muscles not just as a regulator but also as a supervisor. It has been unforgiving in extending the tenures of some of India’s most prominent bankers, including Rana Kapoor (Yes Bank) and Shikha Sharma (Axis Bank).
In other cases, it took independent disciplinary action against HDFC Bank, Kotak Mahindra Bank and card issuer Visa, which were later lifted once the issues were resolved.
Over the past decade, there has also been a change in the countries and foreign investors keen to bring capital into India. Singapore, the UAE, Japan and Canada have been seen as acceptable friends with India and feature high on the list of countries providing FDI. It is no coincidence then that these four countries have been capital providers to India’s financial services sector in 2025.
It must be noted here that RBI, in 2020, announced and later approved a scheme for the ailing Lakshmi Vilas Bank to be merged with Singapore-based DBS Bank. The latter got an approval from the RBI to become a wholly-owned-subsidiary (WOS) in 2017.
Ashish Jhaveri, managing director and head of India Investment Banking at Jefferies India, tells Forbes India: “These deals provide confidence to the public markets in a massive way that bigger institutions are investing into India’s banks. It has triggered more incremental people to look at India now.”
There is data that makes banks and financial institutions worthy winners. Private banks did show resilience across tough cycles (Covid-19 and the global financial crisis) and grew 15 percent annually over the past 20 years, supported by India’s 10 percent nominal GDP growth, low credit penetration (58 percent versus 170 percent in China and 200 percent in the UK), and steady market share gains from state-owned banks.
Jhaveri says investor interest was always strong and is now........