Foreign investors have become bullish on the banking sector given its attractive valuation, robust growth prospects and easing policy measures by the RBI, leading to a flurry 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 a 24 per cent stake in YES Bank, Dubai Emirates NBD will buy a 60 per cent stake in RBL Bank for ₹26,850 crore and US-based Blackstone will pump ₹6,200 crore into Federal Bank for a 10 per cent equity stake.
The previous takeovers of Indian banks by foreign investors have worked out well. DBS Bank India, which acquired LVB in 2020, has reported that net profit rose 81 percent to ₹684 crore (₹377 crore) last fiscal, demonstrating robust growth and operational efficiency.
A huge underbanked population of 400 million is expected to drive huge demand for credit, especially in the retail and SME segments. Saurabh Jain, head of Fundamental Research at SMC Global Securities, says midcap banks trading at an attractive 1.2 to 1.7 times book value make them ideal entry points for global players looking for diversification amid US interest rate volatility and global concerns.
Opening the banking sector to large foreign companies will improve customer service through technology transfer, competition and capital for expansion, but it also risks shifting the focus to high-margin corporate customers at the expense of the retail and SME segments, he added.
Karan Kamdar, analyst at SMID, Choice Institutional Equities said the banking sector is undergoing a structural transformation with regulatory clarity and reforms that signal trust, transparency and long-term growth potential, making India an attractive destination for strategic global investments, he added.
The medium-term outlook for credit growth remains positive, supported by multiple factors such as RBI rate cuts and CRR cuts, improved liquidity and recent tax relief measures.
The RBI has made provisioning for expected credit losses mandatory from April 2026, a move that will further strengthen banks’ ability to manage asset quality, he said.
N ArunaGiri, founder and CEO of TrustLine Holdings, said the credit ratings of private banks have been downgraded earlier due to concerns over slippages and rising credit costs in the unsecured and micro-lending segments. This provided an attractive entry-level valuation for foreign investors, he said.
However, the tide appears to have turned as recent performance of most private banks indicates declining slippages, moderating credit costs and accelerating loan growth, he added.
Vishnu Kant Upadhyay, AVP -Research & Advisory, Master Capital Services said that after the recent cleanup of the banking sector, NPAs are at a decade low and credit growth is strong.
The approval of transactions by the RBI shows confidence that foreign investors with strong capital will strengthen the Indian banking system and not undermine it, especially as the sector needs capital to support economic growth.
Strong credit demand and increasing financial inclusion are a notable reflection of the country’s broader economic momentum, he added.
Published on October 31, 2025
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