The author, Manish Aggarwal, is a partner at Deloitte India.
The Russian revolutionary Vladimir Lenin once remarked, “There are decades where nothing happens; and there are weeks where decades happen.” The Indian banking system is reflecting a similar tale.
In less than a calendar quarter, two large global banks and a private equity (PE) firm have acquired strategic stakes in Indian banks.
In October 2025, UAE-based Emirates NBD said it will buy a 60% stake in RBL Bank for $3 billion—the largest cross-border acquisition in India’s financial sector. In the same month, PE firm Blackstone said it will pick up a 9.9% stake in India’s Federal Bank for $705 million via preferential equity shares and warrants.
The deals are among a series of cross-border transactions in the banking sector in India this year and come months after Japan’s Sumitomo Mitsui Banking Corporation’s (SMBC) move to acquire up to 25% of Yes Bank.
These signify the opening of a new chapter in the Indian banking system, as the transactions mark the first non-stressful Mergers and Acquisitions (M&As) in the country’s private banking sector. In the future, it will also help open the doors for foreign banks to own significant stakes in Indian banks.
While the government aims to divest its majority stake in select identified banks to boost capital flows and infuse liquidity into state-run banks, it is also reportedly contemplating enhancing the foreign investment ceiling to 49% from the current 20%.
The bigger the elephant, the better the dance
India needs to deepen and broaden the scope of its banks as the primary force of inclusive financial growth and the internationalisation of its exponentially growing businesses.
At one end of the spectrum, banks would need to expand their capital bases, along with having global reach, to service the country’s corporates and affluent individuals. On the other hand, they must utilise technology to meet the banking needs of India’s growing middle class.
Inroads of technology into financial systems have disrupted traditional banking methods, and nimbler fintechs can deliver financial services at a fraction of the cost of brick-and-mortar banks. Banks need to compress their cost-to-income and cost-to-assets ratios to remain competitive in the market and drive growth.
The significant capital investments required to invest in the technology- and AI-driven automation are better defrayed over a larger bank.
Larger global banks must also meet the expectations of corporates who are rapidly internationalising their businesses and need higher cheque sizes, which cannot be met without higher capital bases.
We foresee an ongoing consolidation in the Indian banking system wherein larger banks would be formed via M&As of mid-sized banks. India deserves a rightful place in the global banking landscape by targeting at least two to three banks in the Global Top 20, which can be achieved only through an inorganic route.
The significant capital investments required to invest in technology and AI-driven automation are better defrayed over a larger bank.
Foreign banks eye a piece of the explosive growth; funds join the party
India offers a once-in-a-lifetime growth opportunity as the economy scales up:
1. India’s wealthy are growing in numbers and in assets. Per Deloitte’s estimates, financialisation of assets is likely to multiply the assets under management (AUM) of wealth management from US$1.1 trillion presently to US$2.3 trillion by 2030. A significant portion of this wealth is emerging in Tier 2 and Tier 3 cities, where the existing foreign banks’ branch-based model is making limited headway.
2. India has 28 million registered companies in total and around 8,000 listed companies. It has the third-highest number of listed companies with a market capitalisation of more than $1 billion, alongside over 100 unicorn companies in the unlisted space. India’s primary listing market is expected to break all records this year, with over $15 billion of fresh issuances anticipated by the end of calendar year 2025. Banks want a piece of this pie via intermediation.
3. More than 200 of the Fortune Global 500 companies operate in India and banks need to service their clients in the local market. India already has 1,800 Global Capability Centres (GCCs) of foreign companies; it is likely to reach about 5,000 by 2030.
4. India is integrating more into the global export–import (EXIM) trade with trade flows nearing US$2 trillion annually. Indian diaspora remits around $130 billion annually. The bilateral trade flows create a backdrop for foreign banks to facilitate and offer corporate banking solutions.
On the one hand, a confluence of valued customers coupled with valuable assets, as well as a long growth runway with stable and credible regulation, has made India’s financial services opportunity too attractive to be ignored.
On the other hand, the banking regulator has been frugal (and rightly so!) with the issuance of new banking licences; the last set was issued about a decade ago.
This makes secondary acquisition of mid-sized banks the only feasible approach for a foreign bank to enter the market. The actual approach to the transaction is bespoke to the strategic objectives and thus the outcome of equity stake could be a strategic minority to a majority position.
The secondary acquisition of a mid-sized bank is the only feasible approach for a foreign bank to enter the market.
A few years back, the Government of India (GoI) launched the disinvestment process of IDBI Bank, a mid-sized bank majority-owned by it, along with LIC, the largest publicly controlled insurer, which initiated a series of deliberations on every strategic aspect of the banking space.
This changed the face of banking, driven by a growing economy and an aspirational population, as well as capital requirements, the source of capital and the range of regulatory issues governing the space.
Years of diligent, painstaking efforts by all key stakeholders delivered a strong message to foreign banks: India and its regulator mean business. The response was positive as they lapped up two attractive banks between September 2025 and October 2025. We must remember that what seems like a quarter of heightened activity is the result of years of efforts by key stakeholders and the regulator that laid a solid foundation for this M&A wave.
India has witnessed double-digit credit growth in the post-COVID period, which has slowed marginally in the last twelve months. Banks are preparing to capture the next round of credit expansion and are shoring up their capital bases. High-quality banks with niche competitive plays are making interesting investments from a financial investor standpoint. The market has seen a handful of investments in banks with asset sizes of $20-40 billion by PE funds.
The investment thesis for both foreign banks and investors remains strong, as a multi-dimensional growth opportunity allows for exponential scaling, and India’s robust digital payment systems drive efficiency.
A vibrant capital market with increasing domestic capital flows allows unlocking value for foreign banks and generating potential exit avenues for the PE funds.
How much further will regulatory guardrails broaden to welcome more capital?
India’s banking system has experienced one of the lowest levels of failures, thanks to a robust regulatory framework and adequate supervision. The regulator has also been quick to address any systemic shortcomings in banks through regulatory actions or a rapid change in control.
However, banking regulation remains relatively narrow in scope, unable to welcome large pools of capital. For instance, financial investors can own only below 10% equity stake in a bank, and corporates cannot own more than 5% equity of a bank.
Banking regulation remains relatively narrow in scope, unable to welcome large pools of capital.
While foreign banks can own larger stakes, the voting rights are capped at 26%, implying that in most cases, even if foreign banks own the majority of economic rights in an Indian bank, consolidation in their parents’ books may be complex.
A run-rate credit growth of $250-300 billion a year requires a capital accretion of $30-40 billion annually. Any turn in the credit cycle may aggravate this capital need. Historically, the government has stepped in as a provider of last resort for capital; however, for a robust banking system, regulation must be eased to allow for stable, long-term global capital participation.
Foreign ownership further drives efficiencies via global best practices and integrates the economy into the international payment systems.
A few systemically essential banks may be identified where ownership can be well diversified in both domestic and foreign capital. For other banks, ownership regulation can be more flexible, allowing for scaling up via broadened sources of capital.
A bright outlook amid the Goldilocks zone
Indian banks have displayed robust growth while maintaining a low single-digit non-performing assets ratio. The return on equity remains closer to mid-teens, with potential for accretion through leveraging technology and economies of scale.
In my view, the availability of attractive mid-sized bank assets will drive M&A activity in the market over the next 18 to 24 months. Depending on the success of the IDBI Bank’s ongoing disinvestment process, a few public sector banks may also come up for privatisation, deepening the deal pipeline.
While a few Western banks have recently exited their Indian retail portfolios to focus on their core markets, we remain optimistic about interest from geographies such as Japan, Southeast Asia and the Gulf nations, driven by rising bilateral trade flows and a strong diaspora. A capital rotation is underway, with the Global South at the forefront.
