Oct 21: Global Eyes On Indian Banks, Startups Go Vertical

Hope you all had a great festival of lights! Here’s to wishing all of you (and us) a great year ahead. Keep reading, and tell a friend about us this Diwali 😄

Now, let’s get into the Dispatch! 🚀

Today’s reading time is 6 mins.

Record Deals Put India On The Map: India’s financial sector is grabbing global attention, fueled by a wave of multi-billion-dollar deals at a time when markets elsewhere face uncertainty. Over the weekend, Emirates NBD Bank PJSC announced plans to invest $3 billion in RBL Bank Ltd., marking the largest foreign investment in India’s banking history. Earlier, Abu Dhabi’s International Holding Co. PJSC invested $1 billion in Sammaan Capital Ltd., while Sumitomo Mitsui Financial Group Inc. acquired a 20% stake in Yes Bank Ltd. for $1.6 billion. Altogether, data shows about $15 billion of deals targeting India’s financial sector this year, as global investors seek growth opportunities in one of the world’s fastest-growing major economies.

Why Investors Are Watching India: Despite limited past success of foreign bank acquisitions in India, investors see potential. India offers significant advantages: rapid digital adoption, a large under-banked population, supportive government policies, and a relatively stable financial system.

Stronger Rules, Stronger Banks: India’s banking system has improved since a shadow bank crisis seven years ago. Bad loans forced reforms including bankruptcy law overhauls and recapitalization of public sector banks. The Reserve Bank of India has strengthened oversight, encouraged credit flow, and clamped down on excessive risk-taking. Recent regulatory moves allow foreign investors larger stakes than before. For instance, SMBC’s 20% stake in Yes Bank exceeds the previous 15% limit, signaling India’s intent to attract foreign capital.

Earnings Show Resilience: Top private lenders continue to perform strongly. HDFC Bank and ICICI Bank reported better-than-expected earnings, driven by loan growth, even as interest margins remain under pressure. The Nifty Bank Index has rallied more than 13% this year, closing at record highs, reflecting both market confidence and the sector’s resilience amid global uncertainty.

More Deals On The Horizon: The pipeline for large investments remains robust. A planned government stake sale in IDBI Bank Ltd. is expected to fetch billions, while Japan’s Mitsubishi UFJ Financial Group Inc. is actively pursuing stakes in Shriram Finance Ltd. Analysts stress India’s low correlation with global financial shocks and the growth potential of its banking sector as key attractions for overseas investors.

Strategic Advantage For Foreign Players: Foreign banks benefit from existing branch networks, experience, and governance knowledge. Singapore’s DBS fully acquired Lakshmi Vilas Bank in 2020, gaining over 500 branches, while SMBC aims to expand its footprint through Yes Bank. Experts argue this not only supports the foreign investors’ growth ambitions but also strengthens Indian banks’ operational and regulatory frameworks.

Narrow Focus, Bigger Impact: India’s quick commerce ecosystem is seeing a subtle but important shift. While big names like Blinkit, Zepto, and Swiggy Instamart still compete by offering everything under the sun, a new crop of startups is doing something different - going vertical. Instead of spreading across multiple categories, these players are zeroing in on specific niches like beauty, health, fashion, and pet care.

Why Specialization Works: Investors are taking notice. Focusing on one segment allows startups to stock better products, understand customer needs more deeply, and drive higher order values. In other words, vertical startups can offer a curated, reliable experience that horizontal platforms often struggle to match. Some categories are still wide open - think specialty health items, niche personal care, or unbranded essentials - giving vertical startups a chance to dominate before the space gets crowded. Investors see these focused plays as less risky and potentially more profitable, especially in a market that’s growing as fast as India’s. 

IT Sector Shows Signs Of Stabilising: Goldman Sachs reports that India's IT services sector is showing initial signs of demand stabilisation. However, visibility into calendar year 2026 remains limited. The report suggests that AI-related productivity gains may become more mainstream, potentially keeping valuations subdued.

EU-India Deal Sparks Optimism: The European Investment Bank (EIB) expresses strong confidence in India's long-term growth prospects. Ongoing trade talks with the European Union are viewed as signs of steady progress. The EIB emphasizes the need for faster approvals and a level playing field for global investors to boost investment flows, particularly in climate action and urban mobility projects.

Credit Rule Shift Hits PNB: Punjab National Bank (PNB) anticipates a $1 billion impact due to the transition to new credit rules. The CEO highlights the challenges posed by the regulatory changes. The bank is taking measures to adapt to the new framework while maintaining its financial stability.

Affordable Trips On The Rise: Affordable leisure travel in India has surged by 22% this festive season, driven by GST 2.0 and a shift towards "smart luxury." Short trips to cities like Jaipur, Lucknow, and Bhopal are leading the trend, reflecting a preference for budget-friendly getaways over traditional luxury vacations.

India Balances US-Russia Relations: India is steering a delicate balance between its relations with the U.S. and Russia while pursuing a trade deal with President Donald Trump. India aims to maintain its strategic ties with Russia, especially in defense and energy sectors, while addressing U.S. concerns over its oil imports from Russia. This balancing act is crucial as India seeks to secure favorable terms in its negotiations with the U.S.

Easing Import Restrictions On Chinese Goods? India is reportedly considering easing some of its import restrictions on Chinese goods due to increasing reliance on Chinese imports. Sources indicate that the government is evaluating the impact of these curbs on domestic industries and the economy. The move aims to address supply chain issues and ensure the availability of essential goods.