RIGHT PROFILE: Indian banking sector — stronger, cleaner, and better capitalised in recent times | Photo Credit: Abeer Khan

RBL Bank MD and CEO R Subramaniakumar recently likened Emirates NBD Bank’s (ENBD) proposal to acquire 60 per cent stake in RBL Bank, through a primary infusion of about $3 billion (₹26,850 crore) to “bees getting attracted to flowers to collect nectar and pollen”.

The CEO’s comment also reflects on ongoing developments in the country’s fast growing banking sector.

In the current financial year, there have been a host of deals in the banking, financial services and insurance (BFSI) space, with foreign entities entering into agreements to buy significant or controlling stakes in the domestic entities.

Besides the RBL Bank-ENBD deal, the BFSI space saw Japanese bank SMBC investing around $1.6 billion to acquire over 20 per cent stake in YES Bank, and Abu Dhabi’s IHC announcing its intention to pick up a controlling stake in non-bank lender Sammaan Capital (formerly Indiabulls Housing Finance) for $1 billion.

Last Friday, the board of directors of Federal Bank approved a preferential issue of about 27.29 crore warrants, aggregating to ₹6,196.51 crore, to Blackstone-backed Asia II Topco XIII Pte Ltd.

Macros in place

According to Prashant Kumar, MD and CEO at YES Bank, to support its economic growth, the country needs to have large banks. Domestic banks also need the “right kind of capital”, he says.

“The source of capital is very important. If it is coming from long-term strategic players, it is very important and required for building larger banking institutions. Today, our banking system is able to attract foreign capital... Earlier, maybe, regulators were not willing to give these approvals; but with a change in approach, the Indian financial market is able to get foreign capital,” Kumar says, adding that, except India, he does not see any other country posting over 6 per cent GDP growth each fiscal.

With the demographic dividend of young people who are well qualified and skilled, and political stability in place, domestic banks are an ideal investment opportunity for strategic foreign investors, the Yes Bank chief says.

RBL Bank’s Subramaniakumar concurs: “The biggest reason is India’s growth story. We are talking about Viksit Bharat by 2047. I don’t see this narrative coming out of any other country. Our population stands at 1.4 billion... our demographic dividend is such that we have a great set of skilled people available for converting investments into reality. Our domestic consumption will be able to take in all the investments being made.”

He adds that the ENBD-RBL partnership will enable the latter to enhance its international trade finance and wealth management businesses, expand its market share and bolster corporate governance standards.

Healthy sector

Pratik Shah, partner and national leader, financial services, at EY India, says India’s banking sector has emerged stronger, cleaner, and better capitalised over the past few years. The system has seen a decisive improvement in asset quality, record-low in non-performing assets (NPAs), robust profitability, and healthy provisioning.

“Public sector banks (PSBs) turned profitable, with average ROA (return on assets) improving from -0.5 per cent in FY19 to 1 per cent in FY25, while private sector banks’ average ROA rose from 0.2 per cent to 1.2 per cent. Similarly, the CET (common equity tier 1) ratio for PSBs and private sector banks strengthened to 13 per cent and 16 per cent, respectively, by FY25,” he says.

Balance sheets now are far more resilient, liquidity is comfortable, and most banks are positioned for sustained double-digit credit growth, he adds.

“Foreign banks and investors view India as a unique convergence — a large, under-penetrated market, robust institutions, and a reform-oriented policy framework. Their interest is not confined to mid-sized or non-promoter-driven banks; rather, they are seeking strategic footholds in institutions where they can contribute capital, technology, treasury management, and sector-specific expertise,” Shah says.

According to Ramkumar S, Partner, Grant Thornton Bharat, there are three reasons why foreign banks are investing in Indian lenders: India’s growth story; the acquisition route is more convenient than the organic route; and the government’s thrust on bringing in foreign capital for PSBs.

“Setting up a bank from scratch and expanding brick-by-brick will take time... new bank licences are few and far between. It is convenient to monetise an existing bank’s network and expand growth,” he says. “The government wants to unlock the value in PSBs... Capital infusion will help extend credit to critical infra projects,” he adds.

Vikram Gupta, Partner at Hunt Partners, says global banks are looking at India not as a bailout story but a serious growth opportunity. With their home markets slowing, they’re betting on India’s strong credit cycle and expanding consumer and SME base.

“This influx of capital and partnerships is reshaping the talent landscape as well. Foreign ownership and strategic alliances raise the bar for leadership quality, governance, and succession planning. They also make mid-sized banks more attractive to seasoned professionals,” he says. As these banks expand into digital lending, wealth, and payments, Gupta sees a surging demand for leaders with cross-border exposure, technology depth, and risk-management sophistication.

Tailpiece

While the foreign bank bees are zooming in to guzzle nectar from a bouquet of Indian banks, the real test will be whether these cross-border acquisitions lead to genuine integration of systems, culture, and risk understanding rather than a temporary convergence of convenience, as noted by a former senior RBI official in a Basispoint Insight column..

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Published on October 27, 2025