But selectively, with regulatory scrutiny and special approval, points out Tamal Bandyopadhyay.
In September 2006, the Union government had put the Satara (Maharashtra)-based United Western Bank under a moratorium on the Reserve Bank of India's advice.
There were many suitors for the old private bank, including two large foreign banks operating in India, but it was IDBI Bank Ltd that came out a winner.
The scene is very different now. The turf on which foreign banks play in India is changing fast, as is the approach of foreign investors towards Indian banks.
And, of course, the lens through which the banking regulator looks at them, too, is changing.
Before we delve deeper into the new phenomenon, here's a snapshot of the foreign banking industry in India.
In March 2025, there were 44 foreign banks and 34 representative (rep) offices. Branches of foreign banks have been on a decline.
For instance, in March 2021, there were 874 branches and 36 rep offices; by the next year, the branches had slipped to 861 and rep offices to 34.
The trend continued. In March 23, there were 782 branches and 33 rep offices, and by March 2024, the branch network further dropped to 780 and rep offices to 31.
In March 2025, foreign banks had 993 ATMs across India. How does this compare with the ATM network of public sector and private banks? Well, public sector banks had 133,000 ATMs and private banks 77,117.
Foreign banks' share in deposits is around 4.92 per cent and advances about 3.85 per cent.
Let's return to what is happening now. Federal Bank Ltd announced that Blackstone, the world's largest alternative asset manager, would invest Rs 6,197 crore in the Kochi-headquartered bank through its affiliate Asia II Topco XIII Pte Ltd.
Once the deal is sealed, Blackstone will hold a 9.99 per cent stake in Federal Bank and have the right to nominate one director on its board.
Six months ago, in April, US-based private equity firm Warburg Pincus LLC and Abu Dhabi Investment Authority (ADIA) had announced an investment of Rs 7,500 crore in IDFC First Bank Ltd through a preferential equity issue. The objective was to support the bank's growth.
Warburg Pincus, through its affiliate company Currant Sea Investments BV, invested Rs 4,876 crore, and ADIA, through its wholly owned subsidiary Platinum Invictus B 2025 RSC, Rs 2,624 crore.
Currant Sea Investments BV now holds 9.99 per cent in IDFC First Bank and Platinum Invictus B 2025 RSC, 5.1 per cent.
Following this, Warburg Pincus will also have a director on the bank's board.
These are recent instances of foreign investors' newfound love for Indian banks. The tale of foreign banks has a different twist.
On October 19, the board of directors of Emirates NBD Bank (ENDB) and RBL Bank Ltd approved definitive agreements for Emirates bank to acquire a controlling stake in RBL Bank, infusing Rs 26,850 crore.
This is the largest foreign direct investment in the Indian financial services sector to date.
ENDB wants to pick up a 60 per cent stake in RBL Bank via preferential issue.
The deal is subject to the approval of its shareholders, regulators such the RBI and the Securities and Exchange Board of India as well as the government of India.
Since it wants to acquire a 60 per cent stake, ENDB will have to make a mandatory open offer to buy up to 26 per cent stake from the public shareholders of RBL Bank, in accordance with the market regulator's takeover regulations.
The story doesn't end here. The board of directors of ENBD and RBL Bank also approved the amalgamation of the India branches of ENBD with RBL Bank.
The Dubai-headquartered lender currently operates through three branches in India, located in Chennai, Gurugram, and Mumbai.
If the approvals come through, ultimately, RBL will become a locally incorporated subsidiary for ENDB.
In May, the RBI had granted in-principle approval to ENBD to establish a wholly owned subsidiary in India.
So far, there are only two such local subsidiaries of foreign banks: DBS Bank India Ltd and State Bank of Mauritius Ltd.
In November 2020, DBS Bank took over Lakshmi Vilas Bank Ltd.
Incidentally, DBS Bank had received RBI's in-principle approval for converting its existing India franchise into a wholly owned subsidiary in September 2017.
It incorporated the subsidiary in March 2019 and merged the troubled old private bank in November 2020.
For the ENDB-RBL Bank deal, the sequence of events is different.
Under RBI norm, the MD and CEO of such a subsidiary must be a resident Indian.
While the promoter can have as many as three nominees on the board, the majority of the directors have to be of Indian origin.
Besides, two-third of the directors must be non-executive, and one-third, including the chairman, independent directors.
Unlike local banks, such subsidiaries do not necessarily need to tap the market and list on stock exchanges.
If they want to do that, they must dilute 26 per cent stake through a public issue.
Last month, Japanese giant Sumitomo Mitsui Banking Corporation (SMBC) acquired a 24.22 per cent stake in Yes Bank Ltd.
Initially, it acquired a 20 per cent stake in Yes Bank through a secondary purchase of shares from State Bank of India and a few other lenders.
SMBC has RBI's approval to increase its holding in Yes Bank to up to 24.99 per cent.
Despite selling off a 13.18 per cent stake in Yes Bank to SMBC for Rs 8,889 crore, SBI still holds around 10 per cent of equity in the bank.
SBI and seven private sector banks, which had invested in Yes Bank during its reconstruction in March 2020, have sold their 20 per cent stake for Rs 13,482 crore to SMBC.
The latest deal makes SMBC the largest Yes Bank's shareholder. Two SMBC representatives -- Rajeev Veeravalli Kannan and Shinichiro Nishino -- have joined the private lender's board.
There is a difference between the RBL Bank and Yes Bank deals. In the case of RBL Bank, Rs 26,850 crore of new money will flow in, bolstering its capital and helping it grow its balance sheet.
The Yes Bank deal was an 'offer for sale'. Here, the sellers got the money, not the bank.
Of course, SMBC's investment will bolster Yes Bank's capital-raising capabilities, give it access to SMBC's international network, and boost business growth, particularly in corporate banking and cross-border trade between India and Japan.
However, at this moment, there is no fresh capital infusion.
Going by the media reports, ENBD, along with a few others, was eying a majority stake in IDBI Bank.
The government had started the divestment process for IDBI Bank in October 2022, inviting expressions of interest from prospective buyers.
Next, it invited expressions of interest by potential buyers in January 2023.
The government owns 45.48 per cent stake in the bank, and the Life Insurance Corporation of India, 49.24 per cent -- putting their combined stake at 94.72 per cent.
Both are planning to sell 60.72 per cent in the bank. Department of Financial Services Secretary M Nagaraju said that the stake sale in IDBI Bank would be completed in 2025.
Here too, irrespective of the nature of the investor -- foreign or domestic -- no new money will come in to bolster the bank's capital. The sellers will get the money.
Anyway, we will wait for the announcement. I am sure IDBI Bank is not competing with Air India when it comes to 'privatisation'!
On a serious note, is the regulator's approach to foreign ownership in local banks changing? It's too early to say so.
The 74 per cent cap on foreign direct investment in private banks remains, and the strategic single-investor cap of 15 per cent, too, is in place, unless exemptions are granted.
What is changing, perhaps, is the regulator's willingness to review whether foreign banks and investors can hold a higher share in certain banks.
To this extent, the move is towards 'opening up' the sector, but selectively, with regulatory scrutiny and special approval. A welcome move.
Tamal Bandyopadhyay, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd. You can e-mail the author at tamal.the@gmail.com
Feature Presentation: Aslam Hunani/Rediff
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