In a ringing endorsement of India’s fast-growing banking and financial services sector, foreign capital is pouring into the space. Mitsubishi UFJ Financial Group’s (MUFG) blockbuster acquisition of a 20% stake in Shriram Finance for about $4 billion has taken the value of Japanese investments in the sector this year to over $6 billion. Overall, foreign investments across five deals have crossed the $10-billion mark in 2025. MUFG, Japan’s largest bank with nearly $3 trillion in consolidated assets, can easily absorb a $4 billion investment. But the size of the cheque is less important than the conviction behind it. Overseas investors are being drawn by the sheer scale and growth potential of India’s financial services market. With top-tier private banks largely unwilling to dilute equity, foreign investors are turning to smaller private sector banks, non-banking financial companies (NBFCs), and niche financial firms.
Why Tokyo is Funding India’s Credit Boom
Several of these institutions need fresh capital to strengthen balance sheets and remain competitive. That explains Sumitomo Mitsui Financial Group’s purchase of a 24.22% stake in Yes Bank and Emirates NBD’s acquisition of a 60% stake in RBL Bank. Mizuho Financial Group’s long-drawn acquisition of a controlling 61.6% stake in investment bank Avendus Capital also fits the pattern. In addition, a couple of overseas players are understood to have thrown their hats into the ring for a controlling stake in IDBI Bank. This deal momentum is no coincidence. It reflects a clear softening in the regulator’s stance on foreign ownership of domestic financial institutions. Both the Reserve Bank of India (RBI) and the government appear more relaxed, as evidenced by the size of stakes now being permitted. While these are relatively smaller lenders, the pedigree and track record of the foreign buyers are beyond question.
Regulatory Realignment
Market commentary suggests that it would not be surprising if foreign owners are eventually allowed a greater say in management and strategy. For now, however, voting rights for overseas investors remain capped at 26%, regardless of their economic ownership. Any signal from the RBI on easing this restriction could trigger a fresh wave of interest from global financial players. Japanese institutions, in particular, have been long-term believers in India. Although cumulative Japanese foreign direct investment—about $46 billion between April 2000 and September 2025—lags inflows from the US, which total around $77 billion, Indo-Japanese partnerships have often proved durable and successful. Cultural differences can sometimes pose challenges in such alliances, but the capital infusion itself is unquestionably valuable. While Shriram Finance is already running a relatively strong business, it is less clear how lenders such as Yes Bank or RBL Bank would have raised substantial growth capital without foreign participation. In any case, a stronger capital base is always a positive.
Better-capitalised institutions, backed by credible global promoters, should intensify competition in the lending ecosystem. Over time, this could lower the cost of funds and, in turn, reduce borrowing costs for consumers and businesses. In Shriram Finance’s case, for instance, the additional capital will allow the company to build portfolios in new segments. More broadly, sustained capital inflows into the NBFC sector could make lending more inclusive. NBFCs typically have deeper reach and stronger on-ground connect with small businesses and underserved borrowers—areas where India’s credit needs remain vast. In that sense, the surge of foreign investment is not just a vote of confidence in individual institutions, but in the long-term promise of India’s financial system itself.