The Indian financial sector—banks and NBFCs—has been attracting significant attention from foreign investors, who are acquiring large stakes despite regulatory hurdles.
Four commercial banks—RBL Bank, Yes Bank, Federal Bank and IDFC First Bank—along with three non-banking finance companies—Shriram Finance, Sammaan Capital and Manappuram Finance—and insurer Kotak General Insurance have together attracted a whopping Rs 1,14,552 crore in 2025 from foreign investors. These investors are largely global financial powerhouses or sovereign entities.
Among these, Shriram Finance’s 20% stake sale to Japanese financial giant MUFG Bank for Rs 39,618 crore is the largest FDI on record in India’s financial sector. Meanwhile, the 73% stake sale in RBL Bank to Emirates NBD for Rs 26,853 crore marks the largest foreign investment in a domestic bank to date.
There was also a major capital outflow during the year, with the Bajaj Group paying Rs 21,390 crore to buy back a 23% stake held by German insurer Allianz in its two joint ventures after a 24-year partnership. This brings the net inflows to Rs 93,163 crore—all within a span of 12 months. The largest chunk came in December, when Shriram Finance announced its $4.4 billion deal to sell a 20% equity stake to MUFG Bank of Japan. Overall, inflows into the sector jumped more than 140% during the year.
What is driving this investment surge? Analysts say the wave of investments by UAE government-owned entities signals a strategic push for more stable capital from non-Western sources. At the same time, Japanese banks appear to be seeking growth markets, given the saturation in their home economy.
India’s financial sector has traditionally been closely held, tightly regulated, and dominated by domestic promoters. The statutory FDI cap for private sector banks stands at 74%, but individual non-promoter foreign investors are typically limited to a 15% stake. Majority ownership above 15% is allowed only in exceptional situations—such as recapitalisation or regulatory intervention—and even then, voting rights are capped at 26% to retain domestic control.
Yet, several banks and NBFCs have attracted foreign direct investment. Even IDBI Bank—whose disinvestment process was shelved again due to valuation concerns—drew interest from foreign entities such as Fairfax Financial Holdings and Emirates NBD.
What value do UAE and Japanese investors—and other global funds—see in these relatively smaller private sector banks and NBFCs? Foreign ownership is already substantial in large banks, with 48.4% in HDFC Bank and 46.8% in ICICI Bank. The regulatory cap for foreign ownership in private banks stands at 74%.
While each deal is significant on its own, collectively they signal something larger—a global re-evaluation of India’s financial sector and its growth potential. Once considered over-regulated and fragmented, the sector is now emerging as one of the world’s fastest-growing and most attractive destinations for long-term capital. The RBI, too, has adopted a positive yet cautious stance toward the entry of global investors.
According to McKinsey, India’s banking industry is the largest sector by net income, generating $46 billion in 2024, with 31% annual growth. Revenue growth is expected to remain strong across both retail and wholesale banking segments as financial penetration deepens. “Despite strong performance, the banking sector is valued lower among industries, indicating market scepticism about long-term value creation,” the firm noted in a recent report.
Yashraj Erande, leader—financial institutions at BCG India, told TNIE that the investment rationale is multifaceted. “Investors can build valuation multiples, while return on equity (RoE) metrics in India are relatively high at 13-14%. Additionally, strong operating efficiencies make scaling up easier,” he said.
Erande added that India offers a significant opportunity to build robust balance sheets that can be integrated into global portfolios. The price-to-earnings (P/E) ratios of smaller banks—often below 1—suggest they are relatively inexpensive while still being viable, ongoing concerns with strong upside potential.
India’s bank credit-to-GDP ratio also remains low. Currently, it stands at about 50%, compared with a global average of 93%.
However, Erande cautioned: “We need to be thoughtful about the source of capital. Only long-term capital should be welcomed, especially given the complexities of geopolitics. Partners with aligned strategic interests are critical.”
Another analyst, who heads the financial services vertical at a rating agency, said much of the capital inflow—particularly from the UAE—could also carry geopolitical signalling.
“The large investments by UAE government-owned entities send a clear message to Western capitals, especially Washington—that India is no longer dependent on their capital and now has access to more stable funding sources,” the analyst told TNIE, requesting anonymity.