Global Banks Bet Billions on India Deals Amid US Credit Jitters

(Bloomberg) — At a time when credit losses and trade tensions in the United States are rattling investors around the world, billion-dollar deals for Indian banks have thrust the country’s financial sector into the global spotlight.

Over the weekend, Emirates NBD Bank PJSC said it plans to invest $3 billion in RBL Bank Ltd., the largest foreign investment in India’s banking sector. International Holding Co. in Abu Dhabi earlier this month. PJSC signed a deal to buy Sammaan Capital Ltd. for about $1 billion, while Sumitomo Mitsui Financial Group Inc.’s banking unit agreed to pay $1.6 billion for 20% of Yes Bank Ltd. in May.

Nearly $15 billion in deals involving financial services targets have closed in India this year, data compiled by Bloomberg show, at a time when global investors are looking for opportunities in one of the world’s fastest-growing major economies. This builds on previous years’ momentum in investing in lenders, insurance and fintech players.

The enthusiasm for what is happening elsewhere is striking. The recent collapse of Tricolor Holdings and First Brands Group in the US has raised fears of hidden credit losses. India is trying to resolve issues with the US after facing a 50 percent tariff that could negatively impact its growth.

Overseas buyers also don’t have a track record, with the sector dominated by established local players and struggling with the shadow banking crisis less than a decade ago.

“The success story of foreign banks acquiring Indian banks has been very limited” and has not always been reflected in profit and revenue growth, said independent research analyst Hemindra Hazari. The large sums foreign investors are willing to invest indicate intent, but it is not yet clear whether they can create a profitable retail franchise in India’s competitive market, he said.

For now, suitors are focusing on the positives. Indian lenders appear relatively more isolated and are profiting from the rapid adoption of digital, government moves and a large unbanked population. While Japan’s megabanks have been outspoken about their appetite for Indian assets, wealthy companies from the Middle East and Europe are now setting their sights on the expanding middle class in Asia’s third-largest economy.

“India’s growth story has been recognized globally,” RBL’s Chief Executive Officer R Subramaniakumar said at a briefing on Sunday. He pointed out that a stable financial system and strong regulators increase this demand.

The Reserve Bank of India has moved in recent years to strengthen the financial sector through measures aimed at increasing the flow of credit and encouraging lending and financing. The regulator has also clamped down on excessive risk-taking, frequently warning shadow lenders to pursue growth at all costs and promising to take action if they do not strengthen risk controls.

These steps follow the sector’s implosion nearly seven years ago, when a buildup of bad loans weighed on growth. This led the government to overhaul bankruptcy laws and recapitalize state banks.

Policymakers are now exploring ways to attract more foreign investment, including discussing options that would make it easier for foreign investors to increase their stakes in state banks and allowing large companies to apply for banking licenses, Bloomberg News previously reported.

Industry heavyweights HDFC Bank Ltd. and ICICI Bank Ltd. saw both lenders report better-than-expected results on credit growth, even as interest margins remained under pressure. The 12-member Nifty Bank Index closed at a record high on Friday, rising more than 13% this year.

Larger deals may follow. The planned government stake sale in IDBI Bank Ltd. is expected to generate billions of dollars. Mitsubishi UFJ Financial Group Inc., Japan’s largest lender. is actively pursuing acquisition targets and is said to be in advanced talks to acquire a stake in Shriram Finance Ltd.

“Geopolitical risks have accelerated financial and supply chain risks, and foreign investors are seeking alpha in countries that minimize them,” said Vivek Ramji Iyer, partner and leader of Grant Thornton Bharat’s financial services practice. “India’s domestic focus and low correlation with the global economy make it a lucrative entry point.”

–With help from Chiranjivi Chakraborty and Manuel Baigorri.

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