OPINION | Vault Matters: $7 billion, four banks and a new outlook to equity

The recent development, may kindle a different kind of stir among Indian investors and those owning banks.

USD 7 billion, four mid-sized private banks all in six months and more importantly, this is ushering foreign capital. That’s the biggest takeaway for the banking sector in 2025. It comes at a time when the concern in the minds of bankers was what would they do for capital.

To the outside world, senior management of banks were giving one of the finest commentaries, dismissing the need to raise money. Their logic was possibly the perfect marriage of English and numbers which made investors believe that banks are well-capitalised.

Justifiably, the environment until about six months back was also one which warranted extreme caution and hence a single digit to 10% growth seemed justified. It’s not that the operating environment has become better now, but yet fatigue with this mode seems to have set in.

Pursue growth

To get out of this mode, banks should pedal hard for growth. That means banks need money to take the risk for growth which wouldn’t be possible if they just rely on their reserves and surplus to expand the balance sheet. Not that the Reserve Bank of India wasn’t aware of this issue, though by March this year, it became evident that a new engine had to be fixed if the train should actually run and not just chug along the tracks.

Though not strictly a capital raise, the closure of the SMBC - Yes Bank deal was a sigh of relief to the investors’ community. It signalled that there is regulatory will to make things happen on the equity front. The near $3 billion transaction, though all in the form of secondary capital, was quickly followed by Warburg Pincus and ADIA pumping in a little over Rs 7,000 crores into IDFC First Bank.

A few months later from out of nowhere, we saw the big announcement of the $3 billion deal stitched between RBL Bank and Emirates NDB. Within a week, Federal Bank announced the interest shown by Blackstone to pick 10 percent stake in the bank.

Each of these transactions is unique.

Unusual moves

Warburg exited IDFC First Bank completely about a year back and made a re-entry; something which we have not seen happen often in the private equity space. Just when one thought the cap on voting right can be the most compelling factor to discourage foreign investors from taking chunky stakes in India, the SMBC - Yes Bank deal was announced.

No one saw it as a precursor for a foreign bank to take a majority stake in an Indian bank, and that too RBL Bank which doesn’t rank among the top 10 in terms of the pecking order. Federal Bank - Blackstone deal is also very unique, in the sense that, Blackstone has never taken a minority interest and definitely not in a bank in India so far.

A seat in the board room

A common thread in these deals, apart from their foreign origination, is granting the incoming investors a seat on the bank’s boards. This points at a very interesting change in thought process, from the regulator’s and investors’ end – that of prioritising of economic control over the clamour for voting rights, when it is a well-established thing that the process of voting is not one with a wide participation by all segments of investors.

The recent development, may kindle a different kind of stir among Indian investors and those owning banks. More on that next week. But for now, it’s quite satisfying to note that the regulator is beginning to understand that solving the capital problem is also a part of its mandate and unless that is taken care of, growth may remain muted. It also signals the fading of institutional memory etched in the minds of the regulator, thanks to a turbulent period between 2018 and 2020.