indianotes

While complaining to a friend about writer’s block (side effect of an overdose of Diwali sweets?), he suggested I look at the recent Emirates NBD acquisition of RBL Bank.

This deal is significant for several reasons. It’s the first time we’re seeing a majority stake sale in a listed Indian bank. The investment amount is not trivial either, at around $3 billion. And all of this goes into the bank’s balance sheet, as this is a preferential issue.

Interestingly, RBL Bank is not in the pink of health. Starting life as Ratnakar Bank in 1943, it remained a sleepy co-operative bank till 2009. At that point, they raised private equity money and brought in fresh management from private and foreign banks. Several rounds of equity financing and a name change allowed them to expand beyond Maharashtra and position themselves as a national bank. In 2016, they went public, did well for a couple of years, but have since struggled. RBL shareholders have had to be patient – Emirates’ acquisition price was more than 60% lower than its 2019 highs.

Bringing back sustained growth and profitability is a long, hard road in India’s competitive landscape. Even with a lot of money, success is not guaranteed. Yet, the buyers saw enough long-term potential to make it worth the risk.

This got me looking at other FDI announcements, and a big one was from Google. They will invest $15 billion (almost ₹134,000 crores!) over five years to develop an AI hub. The size of the deal and the stature of Google make this significant. Also, the location – Visakhapatnam, not the usual suspects, Hyderabad or Bangalore.

Apart from the RBL deal, two more $1 b-plus deals were announced in the financial sector.  Sumitomo Mitsui Banking Corporation (SMBC) will buy up to 25% in Yes Bank, while International Holding Company (Abu Dhabi) is buying Sammaan Capital (an NBFC).

Banking deals tend to be strategic and signal belief in the long-term growth of the economy. Banks also act as major investment and trade facilitators, so presumably, Sumitomo’s enhanced presence in India would grease the wheels of business between Japan and India. Similarly for Emirates.

All this comes in the backdrop of recent pessimism. Net FDI into India in FY25 was less than $1b. And this sparked a spate of doom-and-gloom headlines. “FDI drops to lowest in 16 years”, “Indian economy to slow down,” “India no longer an attractive FDI destination” and so on.

But this is partly a case of twisting numbers to suit your argument. Gross FDI jumped from under $10 billion in FY06 to over $80 b in FY19, and has since stagnated. But the bigger culprit is FDI outflows, which have shot up in the last couple of years.

Remember that the net FDI number is the difference between FDI inflows and outflows.

Rich valuations and liquidity in our markets have driven outflows. Several multinationals (Hyundai, Whirlpool) divested stakes, as did many PE firms. Some big deals were Bharat Serums, O2 Energy, Swiggy and Ola. Indian companies, too have invested more abroad.

Anyway, I’m straying from the point. The recent deals do indicate that the tide may be turning for FDI in India. After several weak years thanks to Covid, wars, trade disruptions and now Trump; a few large players are signalling their belief in the long-term story. And this is despite all the known problems of bureaucracy, infrastructure, land and whatnot. Maybe this will inspire other fence-sitters.

I believe the current Trump-induced fog will pass. Looking forward 20 years, multinationals know they have to invest in India. We will be simply too large to ignore!

May Goddess Lakshmi bless us all in Samvat 2082 and beyond!