Why Gulf investors are snapping up Indian banks

Change is afoot in India’s finance sector – and Gulf institutions are biting. Last month Emirates NBD, Dubai’s largest lender by assets, said it was taking a 60 percent stake in RBL, a mid-tier Indian bank, and paying a hefty $3 billion.

Emirates NBD has also been linked with Deutsche Bank’s network of 17 branches in India.

Also in October, Abu Dhabi’s International Holding Company bought a controlling stake in Sammaan Capital, a specialist mortgage lender, for a not trifling $1 billion.

More announcements are likely to be on the way. The Reserve Bank of India, the central bank, has let it be known that it is welcoming more foreign investment and wants to see bigger banks. Approvals come on a case-by-case basis – with a clear political tinge. Japanese, Canadian and Emirati investors are “in” for the moment while blue-chip status, deep pockets and local connections help.

IHC, for example, has a small stake in Adani Enterprises, controlled by Indian billionaire Gautam Adani.

DBS of Singapore, southeast Asia’s largest bank by assets, and Fairfax Financial, controlled by Canadian-Indian billionaire Prem Watsa, have also been allowed to invest.

In May, Sumitomo Mitsui Banking Corporation bought 20 percent of Yes Bank. Mitsubishi UFJ Financial Group, Japan’s largest lender, is also reported to be in acquisition talks.

Even US institutions are getting into the market, despite a trade deal remaining elusive. Scott Nuttall, the boss of KKR, said this month that the New York private equity giant’s assets in India – mainly in insurance and healthcare – were its best performing in Asia, along with Japan.

Emirates NBD’s investment has not met with universal approval, however. Our columnist Matein Khalid believes the UAE bank overpaid and wonders how it is going to compete with massive incumbents such as HDFC and ICICI – the latter has more than 7,000 branches.

“Frankly, I doubt that this is a banking marriage made in heaven,” Matein wrote.

But much has changed in India to benefit banks and others. The country is reaping the rewards of reforms instituted by Raghuram Rajan when he was governor of the RBI and of the pro-market Modi government.

• Scrapping the UAE’s salary rule opens up credit access to millions
• India’s JSW to invest $530m in Oman minerals project
• Emirates NBD in talks to buy Deutsche Bank’s India retail business

In particular, the unified payments interface and the national company law tribunal, set up to hear corporate insolvencies and sideline India’s famously sclerotic legal system, are kicking in.

Non-performing loans were only 2.3 percent across 46 banks at the end of March, according to the RBI.

The Aadhaar ID card scheme means “know your customer” procedures can take a matter of minutes. This, in combination with the 2016 demonetisation when 500 and 1,000-rupee banknotes were taken off-market overnight, has boosted deposits.

Yes, the consumer side is a free-for-all. Yes, Deutsche’s apparent willingness to sell up in India is not positive and exiting can be a nightmare, as General Motors can testify. But the Modi administration still has gas in the tank, albeit perhaps polluted. The government has just pushed through GST 2.0, a rationalisation of the goods and services tax, and updated a bundle of labour laws in what some have described as the biggest overhaul in decades.

Three billion dollars is a lot to pay, but on a long-term horizon with growth aspirations the consideration is perhaps not so much. At any rate, financial institutions in the Arabian Gulf are along for the India ride.