Indian banking sector sees wave of foreign investments

Experts attribute the trend to country’s growth potential, regulatory stance

- SUBRATA PANDA

India’s robust long-term growth outlook, along with the increasingly accommodative approach to foreign investment in banking on the part of the Reserve Bank of India (RBI) and the government, is fuelling a wave of deal making aimed at creating larger and stronger banks, according to industry experts.

This year, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) bought a 24.22 per cent stake in Yes Bank. State Bank of India (SBI), along with seven private banks that had invested in Yes Bank during its reconstruction phase in March 2020, collectively sold their 20 per cent to SMBC for ₹13,482 crore.

SMBC picked up another 4.22 per cent in the bank from private equity investors. This marked the single-largest cross-border investment in an Indian private bank. Experts say the transaction could set a precedent for similar deals by foreign financial institutions, which have long been constrained by regulatory caps on ownership and voting rights.

The RBI caps foreign investors’ vote in private banks at 26 per cent and limits financial institutions’ direct investment to 15 per cent.