Why foreign banks are betting billions on the Indian market
What's the story
In a major development, Emirates NBD Bank PJSC has announced it will invest $3 billion in RBL Bank. The deal marks the largest foreign investment in India's banking sector. Earlier this month, Abu Dhabi's International Holding Co. PJSC also signed a $1 billion deal to acquire a stake in Sammaan Capital Ltd. Sumitomo Mitsui Financial Group's banking unit also made a major investment earlier this year. In May, it agreed to pay $1.6 billion for 20% stake in Yes Bank.
Market stability
Indian banks relatively insulated from global financial turmoil
Despite the global financial turmoil, Indian banks have remained relatively insulated. They are reaping the benefits of rapid digital adoption and government initiatives to boost lending and financing. The Reserve Bank of India (RBI) has also taken steps to strengthen the financial sector by curbing excessive risk-taking among shadow lenders and promoting credit flow.
Regulatory actions
RBI's proactive measures to strengthen financial sector
The RBI has been actively working to bolster the financial sector with measures aimed at increasing credit flow and encouraging lending. The regulator has also been vigilant against excessive risk-taking, often warning shadow lenders about the dangers of pursuing growth at any cost. These actions come in the wake of a crisis that hit the sector nearly seven years ago due to a pile-up of bad loans.
Investment strategies
Potential policy changes to attract foreign investment
To further attract foreign investment, policymakers are considering measures such as easing restrictions on foreign ownership in state-run banks and allowing large corporates to apply for banking licenses. These potential changes could open up new avenues for international investors looking to tap into India's growing financial market.
Financial performance
Resilience of India's banking sector
Despite the challenges posed by interest margin pressures, industry giants HDFC Bank and ICICI Bank have reported better-than-expected results driven by lending growth. The 12-member Nifty Bank Index has also rallied more than 13% this year, closing at a record high on Friday.