Foreign investors have turned bullish on the banking sector given the attractive valuation, robust growth prospects and easing policy measures of RBI, resulting a spate of deals in the sector.
In recent months, foreign investors have injected over ₹45,000 crore into three mid-cap private sector banks. Japan’s Sumitomo Mitsui invested ₹13,400 crore for 24 per cent stake in YES Bank, Dubai’s Emirates NBD will buy 60 per cent stake in RBL Bank for ₹26,850 crore and US-based Blackstone will pump in ₹6,200 crore in Federal Bank for 10 per cent equity stake.
The past acquisition of Indian banks by foreign investors have played out well. DBS Bank India, which acquired LVB in 2020, has reported that its net profit surged by 81 per cent to ₹684 crore (₹377 crore) last fiscal, showcasing robust growth and operational efficiency.
A vast under-banked population of 400 million is expected to drive massive credit demand, particularly in retail and SME segments. Saurabh Jain, Head of Fundamental Research, SMC Global Securities said mid-cap banks trading at attractive 1.2–1.7 times the book value make them ideal entry points for global players seeking diversification amid US yield volatility and global concern.
Opening the banking sector to large foreign corporates will enhance customer service through technology transfer, competition and capital for expansion, but it also risks shifting focus toward high-margin corporate clients at the expense of retail and SME segments, he added.
Karan Kamdar, Analyst – SMID, Choice Institutional Equities said the banking sector is undergoing a structural transformation with regulatory clarity and reforms signalling trust, transparency, and long-term growth potential, making India an attractive destination for strategic global investment, he added.
The medium-term credit growth outlook remains positive, supported by multiple enablers such as RBI’s rate and CRR reductions, improved liquidity and recent tax relief measures.
The RBI has mandated Expected Credit Loss provisioning from April 2026, a move that will further strengthen banks’ ability to manage asset quality, he said.
N ArunaGiri, Founder & CEO at TrustLine Holdings said the private banks were earlier downgraded due to concerns over slippages and rising credit costs in unsecured and micro-lending segments and this provided an attractive entry valuation for foreign investors, he said.
However, the tide seems to have turned with most private banks’ recent results indicate declining slippages, moderating credit costs, and accelerating loan growth, he added.
Vishnu Kant Upadhyay, AVP -Research & Advisory, Master Capital Services said after the recent clean-up banking sector NPAs at ten-year low and credit growth has been strong.
RBI approval of transactions shows confidence that foreign investors with strong capital infuse strength into India’s banking system and not undermine it, particularly since the industry requires capital to support economic growth.
The strong credit demand and increasing financial inclusion is a remarkable reflection of the country’s broader economic momentum, he added.
Published on October 31, 2025