Foreign lenders are increasingly choosing to buy established financial businesses in India rather than build banking operations from scratch, as large cross-border deals reshape competition in one of the world’s fastest-growing major economies.
The trend has accelerated with Canada’s Fairfax Financial Holdings agreeing to acquire a majority stake in IDBI Bank for $5.56 billion, while other foreign groups have taken significant positions in Indian banks and financial institutions. The transactions point to a shift from the branch-led expansion strategy pursued by many international lenders in earlier decades.
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Foreign Investors Buy Scale in Indian Banking
Fairfax’s IDBI Bank deal is among the largest recent transactions. Founder Prem Watsa described the acquisition as a “once-in-a-lifetime opportunity” to gain control of a bank in India.
Fairfax also plans to combine other Indian financial investments with IDBI, creating a broader financial services business covering lending, insurance and capital markets.
Other large transactions have followed a similar pattern. Japan’s Sumitomo Mitsui Banking Corporation acquired a 24% stake in Yes Bank, while Dubai’s Emirates NBD agreed to buy a 60% stake in RBL Bank for $3 billion.
Bank of America has also agreed to invest $1.9 billion for a 49.9% stake in a non-bank lending unit of Jio Financial Services, giving it exposure to retail and small-business finance.
Grant Thornton said the recent transactions indicate that investors are favouring financial platforms that already have scale, regulatory oversight and significant capital requirements.
Mergers and acquisitions in India’s financial sector reached $4.1 billion between January and September, according to Grant Thornton, even before the IDBI transaction was announced.
Foreign Banks Return After Earlier Retreat
Foreign banks have had an uneven history in India.
American and European lenders expanded rapidly in the country in the early 2000s but later reduced their presence as the global financial crisis, stricter international capital requirements and India’s domestic bad-loan cycle put pressure on operations.
The latest wave of investment differs from that earlier expansion. Capital is now coming from a wider group of regions, including Japan, the Middle East and North America.
Rather than developing branch networks and customer bases organically, investors are increasingly taking stakes in existing Indian institutions.
Analysts say improved operating performance among Indian banks and relatively attractive valuations are helping draw foreign capital.
Dan Billis, associate portfolio manager at Alquity, said bad debts were at multi-decade lows, credit demand remained healthy and the liquidity environment, together with recent rate increases, could support net interest margins.
He also said banking-sector valuations remained close to historical lows, trading about two standard deviations below their 10-year average.
RBI Exceptions Open Door to Larger Stakes
Indian regulations generally place a 15% limit on the shareholding of a single foreign financial institution in an Indian bank.
However, the Reserve Bank of India has permitted foreign investors to take majority or controlling stakes in some cases through specific exemptions.
That flexibility has helped create space for larger cross-border transactions as mid-sized Indian lenders look for deep-pocketed investors to finance expansion.
One area likely to see increased competition is senior banking talent. Jefferies said leadership reshuffling has already become more common in Indian private banking, and employee turnover could remain elevated as new owners restructure businesses and pursue growth.
The larger question is whether foreign investors can convert capital and control into meaningful market share in an industry where international banks have struggled to build scale in the past.
The recent transactions suggest that, for many global lenders, buying an established Indian franchise is increasingly being viewed as the faster route to growth.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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