IDBI's big sale reveals a ₹1.32 lakh crore trend

Four deals. Three nations. Almost Rs 1.32 lakh crore.

Over the past year or so, the world's most powerful financial institutions have poured huge amounts of capital into India's banking system and non-banking financial companies (NBFCs), indicating a rapidly increasing interest from foreign investors in India's financial industry.

The latest and largest of these deals was approved by the Cabinet Committee on Economic Affairs last Wednesday, October 14, and involves a proposed Rs 52,878 crore acquisition of a 60.72% stake in IDBI Bank by Prem Watsa-led Fairfax Financial Holdings.

Also Read: Canada's Warren Buffett bets his billions on India. What does he see?

With this deal valued at approximately $5.5 billion, it will be the single largest foreign direct investment in India's financial sector and the largest stake sale by the Indian government.

While this deal still needs regulatory approval and other formalities to be completed before closing, Fairfax is far from being the only investor.

Dubai-based Emirates NBD took a roughly Rs 26,016-crore equity position in RBL Bank, which is based in India, during June of this year.

This provided Emirates NBD with a 60 percent ownership stake in RBL Bank.

Similarly, Japan’s Mitsubishi UFJ Financial Group (MUFG) invested approximately Rs 39,620 crore to acquire a 20 percent ownership interest in non-bank lender Shriram Finance.

Additionally, Japan's Sumitomo Mitsui Banking Corporation (SMBC) purchased an initial 20 percent ownership interest in Yes Bank for approximately Rs 13,483 crore.

Collectively, the total amount of these four investments will equal approximately Rs 1,31,997 crore; however, the structures and implications of each investment along with their respective stages of completion vary.

Manish Aggarwal, Partner and Leader – Financial Services and Infrastructure Transactions at Deloitte India, said the IDBI Bank disinvestment marks a significant milestone in India's banking reforms and reflects growing confidence among global investors in the country's financial sector.

“The IDBI Bank disinvestment is one of the boldest and most significant structural reforms undertaken in India’s banking and financial services sector. As one of the largest and most complex strategic disinvestments undertaken by the government, it marks a significant milestone in India’s reform journey, advances the government’s disinvestment objectives and reinforces the country’s position as an attractive destination for long-term foreign investment. The deal is structured very well where in the foreign investor gets management control, brings in capital, expertise to grow the bank, and govt rides this upside through their residual stake,” he said.

While many foreign investors are seeking to obtain majority stakes in established Indian banks, other foreign investors are acquiring strategic minority interests in Indian financial institutions that possess broad lending capabilities and customer bases.

Furthermore, the aforementioned investments provide foreign investors with the opportunity to expand their operations into insurance, consumer lending, wealth management, and other types of financial services.

Therefore, it is possible that these investments may ultimately influence how Indian financial institutions evolve and compete.

Four deals, different ownership strategies

The ₹1.32 lakh crore figure therefore represents combined transaction values, not the amount of new capital entering India's banking system.

Fairfax's IDBI bet goes beyond banking

Fairfax's IDBI acquisition is likely the best example of how foreign investors are looking at opportunities beyond traditional banking investments.

IDBI will provide Fairfax with a large, national banking franchise with more than 2,100 branches, deposits of more than ₹3.25 lakh crore and a loan book of approximately ₹2.58 lakh crore.

Also Read: Fairfax's IDBI deal premium justified by strategic fit, scale: Analysts

By comparison, CSB Bank (Fairfax owns approximately 40%) had deposits of ₹45,415 crore and advances of ₹40,867 crore as of June 2026, according to ET.

Therefore, IDBI will provide Fairfax with a deposit base more than seven times larger than CSB and a much larger lending portfolio.

In addition to the size of the bank, IDBI's improving financial performance makes it an attractive investment.

IDBI's gross non-performing assets decreased from 31.78 percent in September 2018 to 2.32 percent in March 2026; its net bad-loan ratio decreased from 17.30 percent to 0.15 percent; and its capital adequacy ratio increased from 6.22 percent to 26.65 percent over the same period.

IDBI reported a net profit of ₹9,513 crore in FY26.

In addition to its banking investments, Fairfax has investments in insurance, lending, and capital markets in India.

Fairfax has proposed combining its interests in Digit Insurance and IIFL Capital into IDBI, potentially creating a larger financial-services platform, subject to approvals.

However, Fairfax's current investment in CSB Bank creates a regulatory issue.

ET reported on Thursday that Fairfax has created a two-year plan to resolve the issue of having multiple banks owned by the same company; one option is to merge CSB and IDBI. At this time no merger has been decided upon.

Aggarwal added that the groundwork for the transaction helped lay the foundation for strong investment momentum from Japan and the Middle East, while highlighting the importance of long-term foreign capital in supporting India's next phase of economic growth.

"In fact, the entire thought process, groundwork and intensity of efforts around this deal that started few years back laid the foundation that led to the strong investment momentum witnessed from corridors such as Japan and the Middle East into the banking and financial services space," he said.

"With global investors continuing to back India’s growth potential with the largest FDI in the sector despite an uncertain geopolitical environment is a testimony of India’s political stability, continued focus on reforms, and belief in highest growth rates of our economy. It is also an important step in attracting long-term foreign capital into a sector that will play a critical role in supporting India’s next phase of economic growth," he added.

"Transactions of this nature can help accelerate that transformation, strengthen the financial services ecosystem and enhance the sector’s ability to support the evolving needs of the new age economy.”

Japan’s strategy: strategic interests versus majority ownership

Japanese financial institutions have taken a different route to investing in Indian banks; they have purchased large minority stakes in these institutions.

MUFG’s ₹39,620 crore investment in Shriram Finance, which was announced in December 2025 and finalized in April 2026, provided MUFG with a 20 percent stake in the non-banking lender.

Also Read: Cabinet clears way for Watsa's Fairfax's Rs 52,878 crore deal for 60.72% stake in IDBI Bank

As per Shriram Finance’s director’s report, the transaction was completed via a preferential allotment, so the funds went directly into the company as new equity capital.

This investment provides MUFG with access to India’s vehicle finance, small-business lending and consumer credit markets without requiring MUFG to develop a nationwide lending business on its own.

SMBC’s investment in Yes Bank was completed using a different structure.

Initially, SMBC purchased a 20 percent stake in Yes Bank for ₹13,483 crore from State Bank of India and other institutional shareholders in September 2025, making SMBC the largest shareholder in Yes Bank.

Subsequently, SMBC’s holding in Yes Bank increased to 24.9 percent by March 2026, as reported by Yes Bank.

Unlike MUFG’s investment, the initial Yes Bank transaction was completed by purchasing existing shares rather than providing a direct capital infusion.

Both transactions demonstrate how Japanese financial institutions are increasing their exposure to Indian banking and lending through different types of ownership and investment structures.

Why are foreign investors paying billions?

One reason why foreign investors may be paying higher prices for Indian banks is because of the improvement in the financial condition of Indian banks after years of cleaning up bad loans and increasing capital.

However, it does not mean that foreign investors are purchasing these banks at discounted prices.

Based on an ET article published on October 15, Fairfax's acquisition of IDBI Bank valued the bank at approximately 1.5-1.6 times its book value; whereas Emirates NBD's acquisition of RBL Bank was valued at approximately 1.3 times its book value and SMBC's acquisition of Yes Bank was valued at approximately 1.4 times its book value.

Therefore, the valuation of established banking franchises, deposit networks, customer relationships and growth potential appear to be key factors considered by foreign investors.

This trend can also be seen through deal making data.

According to Bloomberg data, foreign investments into India's financial sector reached a record $20.5 billion in 2025 with Japanese and Middle Eastern financial institutions being among the top investors.

Also Read: Fairfax plans to fold IIFL Capital, Digit into IDBI Bank after Rs 52,878 crore India deal

Could these deals reshape Indian banking?

The immediate impact of each transaction is different.

Emirates NBD and MUFG have injected fresh capital into RBL Bank and Shriram Finance, respectively. SMBC has become Yes Bank's largest shareholder, while Fairfax is preparing to acquire a much larger banking franchise through IDBI.

In the long term, foreign-backed financial institutions may increase competition in lending, deposit-taking, technology and wealth management.

However, whether these investments create stronger competitors, larger financial conglomerates or further consolidation will be determined by regulatory approval, business integration and execution.

Acquiring existing institutions provides foreign investors with access to India's financial services market without having to obtain banking licenses, develop distribution networks and build customer relationships from scratch.