Bank on us: Why foreign money is making a beeline to Indian banks
India’s new booming sector is probably one of its oldest. Its staid banking sector is the new blue chip on the block, and international investors can’t have enough, it seems.
Some of the world’s biggest financial institutions are buying into India’s banks and insurance companies. Even non-banking financial companies (NBFCs) are appearing as blue-eyed babies to these shrewd operators. And ironically, all this is happening even as India’s total FDI inflow appears to be slowing down.
The latest came last month when two big investments from abroad, one after the other, suddenly brought the previously-considered-boring Indian banking system into the cynosure of all eyes. Dubai-based Emirates NBD, one of the largest banks in West Asia (‘Middle East’), took a controlling 60 per cent stake in Mumbai-based RBL Bank for Rs 26,850 crore in October-end—the largest FDI and equity raise in the Indian banking sector ever.
It is the first acquisition of majority interest in a profitable Indian bank by a foreign bank (previously in 2019, Canada’s Fairfax had taken control of CSB, though it was in the red at the time), with Emirates NBD also planning to make a mandatory open offer for the purchase of up to 26 per cent stake from the public shareholders of RBL Bank, as per SEBI’s takeover regulations.
While Shayne Nelson, Group CEO of Emirates NBD, said “Our investment in RBL Bank is a testament to our confidence in India’s vibrant and expanding economy,” RBL Bank Chairman Chandan Sinha described the entry of Emirates NBD as “reflecting the global confidence in India's banking sector.”
The other big money infusion came when Blackstone, one of the world’s biggest investment firms with interests ranging from real estate to asset management and private equity, snapped up nearly 10 per cent of the Kerala-based Federal Bank for Rs 6,000 crore and some change.
Interest in Indian banking comes even as India’s economy is on an upward trajectory, with a general belief that the nation’s financial system is still sorely underserved, thereby offering great potential for future growth.
Add to that the Modi government’s openness for further banking reforms, including some more mergers (presently, banks like Indian Overseas Bank, Central Bank, Bank of India, etc., are reported to be considered for a merger exercise) in the offing, which has raised interest levels among interested parties on the global stage.
Right since the present regime came in in 2014, there has been systematic efforts at cleansing and energising the banking sector, including legislations like the insolvency and bankruptcy code, quick action when crises hit certain banks (IndusInd Bank recently and Yes Bank a while ago) by the regulators have had the desired effect—reduction of non-performing assets which had peaked in the early years of the 2010s, as well as increasing profits of public sector banks.
In turn, banks in India are overall on a golden run, thanks to improvement in asset quality, higher profits thanks to better loans, lower interest outgo and the massive digitisation which has helped cut costs even while scaling up adoption. And while the PSUs remain out of bounds, the next-best-thing for eager foreign investors remains the private banks.
Other major movers include Abu Dhabi International Holding Company (IHC) investing nearly 9,000 crore rupees in Sammaan Capital, global investors like Blackrock and Vanguard increasing their stakes in HDFC Bank, and institutional investors like GIC (Singapore) and New York Life increasing their holdings in IDFC First.
Part of this ‘rush’ stems from speculation that the Indian government will further relax rules related to FDI caps in public sector banks (right now, foreign stakes cannot be more than 20% ) while the RBI may rework bank ownership guidelines. Presently, foreign investors can take a majority stake, up to 74 per cent FDI, only in private banks.
Business