RBI’s New Comfort with Foreign Capital Spurs FDI Turnaround in India’s Financial Sector 17Jan2026
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Table showing major FDI deals in India's Financial Sector in 2025
In the final months of 2025, two landmark deals announced a new chapter for foreign investment in India’s financial sector.
Japan’s MUFG moved to acquire a 20 per cent strategic stake in Shriram Finance Limited in a transaction valued at Rs 39,618 crore (approximately USD 4.4 billion), while UAE-based Emirates NBD set sights on a controlling 60 per cent acquisition of RBL Bank Limited for about Rs 26,850 crore (USD 3 billion).
Though both deals are still in the process of closure, they signal a remarkable shift: global financial giants are committing substantial capital to India’s banks and non-banking financial companies (NBFCs), reflecting growing confidence spurred by the Reserve Bank of India’s (RBI) relaxed stance on foreign ownership.
1. A Raft of Deals
As shown in the table above, the seven major deals announced in 2025 together amount to around USD 12.6 billion, or nearly Rs 1.10 lakh crore.
Among these, the deals involving Yes Bank and IDFC First Bank have already closed, while the remaining transactions — including the MUFG-Shriram Finance and Emirates NBD-RBL Bank deals — are expected to see foreign direct investment (FDI) materialise over the next one to two quarters, subject to regulatory approvals.
This wave of foreign capital we witnessed in India's financial sector in 2025 is generally positive for the Indian economy.
Other deals include (see above chart for more details):
Sammaan Capital-IHC / Avenir Investment
Federal Bank-Blackstone Group
Yes Bank-SMBC
IDFC First Bank-Warburg Pincus, ADIA
Manappuram Finance-Bain Capital
2. Role of RBI
The role of RBI, India's banking supervisor, in allowing foreign capital to flood Indian banks and NBFCs is particularly noteworthy. For years, foreign investors were cautious about taking large or controlling stakes in Indian banks due to regulatory uncertainty and investment hurdles.
In 2025, however, the RBI provided clearer signals on foreign ownership and made approval processes more predictable, reducing the uncertainty that had earlier kept large foreign investors cautious.
This regulatory reassurance and comfort gave the filip and confidence to global banks and funds to commit billions of dollars. This is a clear turning point for foreign capital in India's financial services sector.
Observers suggest the RBI’s comfort with significant foreign stakes may reflect wider government backing, giving investors confidence that large foreign participation in banks and NBFCs is now broadly supported.
It indicates the RBI is no longer hesitant about foreign investors owning meaningful stakes, including controlling positions, in Indian banks and NBFCs. This shift is reflected in clearer acceptance of higher ownership levels, faster and more predictable approvals.
As shown above, UAE-based Emirates NBD is set to acquire a 60 per cent controlling stake in RBL Bank, while Abu Dhabi-bassed private equity firm IHC will take a 43 per cent controlling stake in Sammaan Capital.
This combination of regulatory clarity and policy backing helps explain why 2025 has seen an unprecedented wave of foreign capital exploring both minority and controlling stakes across the financial sector.
Even board representation has been permitted for foreign investors with strategic stakes, with examples including two board seats for SMBC in Yes Bank, one seat for Blackstone Group in Federal Bank and two director positions for Bain Capital in Manappuram Finance.
3. Earlier Cases
There have been earlier instances of the RBI allowing significant foreign participation in Indian banking, though they were limited and situation-specific.
In Oct2018, Prem Watsa’s Fairfax India Holdings (FIH) acquired a majority stake in CSB Bank (formerly Catholic Syrian Bank), eventually raising its holding to 49.7 per cent before paring it down to 40 per cent in Jun2024.
Similarly, in Nov2020, the troubled Lakshmi Vilas Bank (LVB) was taken over by DBS Bank India with explicit regulatory backing from the RBI, underscoring the central bank’s willingness to use foreign capital as a stabilising force when domestic options were limited.
4. How the flood of capital will change India's financial sector landscape:
The scale of foreign capital entering India’s financial sector in 2025 is likely to have effects beyond individual transactions.
Beyond strengthening balance sheets and capital buffers, foreign participation can bring operational expertise, technology and global best practices to Indian financial institutions. This exposure often supports better innovation, risk management and product design within the existing regulatory framework.
With more room to lend, invest in systems and absorb economic shocks, institutions also face greater scrutiny on governance, risk management and compliance, particularly where foreign investors have operational influence and a long-term strategic role.
While controlling stakes allow investors to shape strategy and execution, minority stakes enable participation without full responsibility, and over time this combination can translate into improved services and a wider range of financial products for customers.
5. Competition and consolidation
The influx of foreign capital may also lead to intensify competition and encourage consolidation in the financial sector. Well-capitalised banks and NBFCs can expand more aggressively, offer better products and compete for talent and customers -- putting pressure on smaller or weaker players.
At the same time, stronger balance sheets and strategic foreign partners may make mergers and acquisitions easier, helping consolidate the sector.
Major domestic and dominant players such as HDFC Bank, SBI, ICICI Bank and Bajaj Finance are likely to watch these developments closely.
The new foreign capital and strategic stakes in other banks and NBFCs could influence competitive dynamics across the sector -- prompting the existing major players to assess their strategies and growth opportunities in response to the changing landscape.
6. Dominance of Financial Services Sector in India
The financial services sector is the largest in India’s Nifty 500 index (a proxy for India's stock market), accounting for nearly one-third (31.6 per cent) of the index as of Dec2025.
It includes not only traditional banks and NBFCs, but also asset management companies, insurance firms, small finance banks, capital-market-related entities and FinTech companies.
The sector’s expansion reflects broader economic growth, financial inclusion and innovation. Digital payments, UPI, mobile wallets; and FinTech platforms like Zerodha and Groww have made financial services more accessible to millions, while new products in wealth management, insurance and lending have diversified consumer choice.
The surge in demat accounts has broadened access to capital markets, making it easier for companies of all sizes to raise funds for growth and expansion.
With this dominant role in India’s economy, the sector naturally attracts foreign capital, which sees both scale and innovation as opportunities to invest and bring global expertise into India’s evolving financial landscape.
7. Tiger Global Case
With its dominant role in India’s economy, the financial services sector naturally attracts foreign capital, and its potential is widely recognised.
Economists such as Ajay Shah of the XKDR Forum have argued that easing foreign capital rules and removing regulatory cholesterol can further unlock investment, allowing large volumes of funds to flow efficiently into the sector.
He noted that regulatory changes allowed a significant volume of capital to enter financial firms in a single calendar year, illustrating how capital account decontrol can unlock large-scale foreign investment in specific sectors.
However, recent developments, such as India's Supreme Court ruling directing Tiger Global to pay capital gains tax on its Flipkart stake sale to Walmart, highlight that while India welcomes foreign direct investment (FDI inflows), it also upholds its sovereign right to tax cross-border transactions.
For foreign investors, clear rules around both entry and exit are just as important as regulatory comfort during ownership. Predictable frameworks for investing, operating and eventually exiting investments strengthen confidence and make India a more attractive destination for long-term foreign capital.
8. Gist
The year 2025 marks a turning point for foreign direct investment (FDI) in India’s financial sector, while the manufacturing sector continues to struggle in attracting significant foreign capital.
India’s manufacturing sector has been unable to attract foreign investment due to regulatory complexities, infrastructure bottlenecks and lengthy approval processes. High compliance costs, land acquisition challenges and inconsistent policy signals have further stymied foreign capital flows to India.
Similarly, in the banking space, the government continues to face challenges in divesting public sector banks, as seen in the prolonged efforts to sell IDBI Bank, highlighting the difficulty of attracting private and foreign capital into certain domestic institutions.
Financial Sector an outlier: Clearer regulation, government support and strategic global interest have unlocked significant capital in the financial sector strengthening companies and gradually reshaping competition.
For customers and the financial sector, this signals a more robust, globally connected and resilient financial landscape.
The influx of foreign capital strengthens the balance sheets and operational capabilities of banks and NBFCs, contributing to a more stable financial system. Customers too may benefit from greater competition and wider ranger of produdcts and services.
While new foreign capital does not guarantee higher stock market returns, it signals a more resilient and globally connected financial sector for Indian investors.
In short, investors can't ignore India's growing financial sector, both on the lending as well as non-lending side.
The Government of India and the RBI remain cautious about allowing domestic corporate groups to take significant stakes in Indian banks. Opening this space could bring new capital and greater competition, which may help improve customer services in a sector that still has room for enhancement.
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References and additional data:
Tweet thread 20May2025 Interesting route chosen by RBI to sort out troubles banks in India
Tweet thread 20Oct2025 Foreign Ownership in Indian financial sector (including banks and NBFCs)
Tweet 26Nov2020 LVB branches to operate as DBS Bank India Ltd
Tweet 21Mar2025 Past Private equity deals in India's financial sector
Blackstone's investment Aadhar Housing Finance
Bain Capital in 360 One WAM
TPG Capital in Poonawalla Housing Finance (now Grihum Housing Finance)
Jan2026 State Street to invest Rs 580 crore for 23% stake in Groww AMC (State Street's voting rights capped at just 4.99%)
Jan2026 TPG Capital nears deal to acquire 40% stake in IIFL Capital Services (media rumour)
Motilal Oswal Nifty MidSmall Financial Services Index fund - Rupee Vest
Mirae Asset Nifty Financial Services ETF
ICICI Pru Nifty Financial Services Ex-Bank ETF
Kotak Nifty Financial Services Ex-Bank Index Fund
Tata Nifty Capital Markets Index Fund
Motilal Oswal Nifty Capital Market Index Fund
Motilal Oswal Nifty Capital Market ETF
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Disclosure: I've got a vested interest
in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if
any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
