Over the past year, the sector has seen significant capital inflows. “The last calendar year saw approximately $12-13 billion in deals where foreign entities invested fresh capital into Indian banks and NBFCs,” said Rikin Shah, noting that about $8-9 billion was primary capital infusion directly strengthening balance sheets.
“This has improved the fundamental lending as well as business capabilities of some of the small and mid-sized banks who otherwise would have been a bit more vulnerable in this ongoing shock,” he added, highlighting that these lenders are now better positioned to grow. He expects more such deals in the small- and mid-sized banking space over the next 12–18 months.
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Recent transactions underscore the trend, including the Shriram–MUFG deal, Sammaan Capital’s $1 billion investment, and Bain Capital’s infusion into Manappuram. Rikin Shah also flagged RBL Bank as a key beneficiary, stating that its proposed capital raise could support growth and improve return ratios.
However, the influx of capital is also reshaping competitive dynamics. “When new capital comes in, it improves the lending capacity and reduces the profit pool for the incumbent players,” he said.
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Drawing parallels from the affordable housing finance segment, Viral Shah stated that increased competition has historically impacted incumbents. “Over the last five years, we have seen a lot of standalone affordable housing finance companies enter the segment… That did clearly impact the profitability and also at the margin the growth for the existing standalone guys,” he said, adding that a similar trend could play out across lending segments such as vehicle and gold financing.
In this evolving landscape, diversification is emerging as a key strategy. “The name of the game in the NBFC space will be diversification,” Viral Shah said, pointing to firms that can expand across segments to offset pressure on margins and growth. He cited companies like Cholamandalam Finance and Bajaj Finance as examples of successful diversification models.
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