Global banks are moving to secure equity in Indian financial institutions, using regulatory easing as a springboard. This is seen as a result of improved investor sentiment as the Indian government and financial authorities have shown a gradually more flexible stance toward large-scale equity acquisitions by foreign corporations.
According to the Financial Times (FT) on the 22nd local time, this year the transaction value in India's financial institutional sector by foreign investors has approached about $8 billion (about 11.788 trillion won), a 237% increase from last year's $2.3 billion. Analysts at Mumbai-based Motilal Oswal Financial Services said this "opened a new chapter for India's financial sector."
This expansion of investment is intertwined with Indian authorities' intent to restructure the financial sector. Finance Minister Nirmala Sitharaman recently said the government would "cultivate more large banks," and the Central Bank, the Reserve Bank of India (RBI), is also reportedly reviewing whether to ease the cap of 15% on equity holdings by a single foreign investor in non-state-owned banks.
Multiple large-scale equity transactions have also passed individual reviews. This year's largest cross-border transaction was the case of Emirates NBD, a Dubai government-owned bank, acquiring 60% equity in mid-sized Indian bank RBL for $3 billion, followed by Japan's Sumitomo Mitsui Financial Group (SMGF), which secured 24.2% equity in Yes Bank for about $1.7 billion to become the largest shareholder.
Transactions involving shadow finance, which was hit by excess credit after the COVID-19 pandemic, are also continuing. A representative case is International Holding Company, a state-owned investment holding company in Abu Dhabi and the largest-cap corporations in the United Arab Emirates, acquiring 43.5% equity in Samman Capital for $1 billion.
In addition, Mitsubishi UFJ Financial Group is also seen to be in talks to acquire large-scale equity in a nonbank financial institution.
Experts cited the high economic growth rate as the reason foreign banks are focusing on Indian financial companies. India boasts a population of 1.47 billion and average annual economic growth in the 7% range. Yatin Singh, chief executive officer (CEO) of MK Global Financial Services investment bank, emphasized, "If you have to allocate capital to an investment destination that ensures reasonable returns for the risk, there may be no market as attractive as India."
Kunal Shroff, a partner at local private equity firm ChrysCapital, noted the valuations of Indian financial companies. While Indian equities trade at 23 times the 12-month forward price-earnings ratio (PER), the highest among emerging markets, financial companies are trading at an average of 17 times.
Singh said, "Credit demand in India is solid, and whatever lending segment you choose, you can find significant opportunities over the next 15 to 25 years," adding, "Investors who acquire Indian banks will be acting with at least a 50-year horizon."