Foreign banks are increasingly turning to India as a preferred expansion destination, leveraging acquisitions and partnerships to tap its $3.65 trillion banking market, even as China's high capital requirements and intensifying domestic competition continue to frustrate foreign players, according to a report by Asian Banking & Finance.

India Emerges as the Deal Destination

Saumitra Sehgan, a partner at global consultancy Roland Berger, told the publication that India's regulatory environment has made it markedly more accessible for committed foreign investors. 'India is becoming easier to plan for, especially for banks willing to commit local capital or buy into an Indian platform,' Sehgan said.

The shift has already produced a string of high-value transactions in 2025. Sumitomo Mitsui Banking Corp. acquired a 20 per cent stake in Yes Bank for $1.6 billion. Mitsubishi UFJ Financial Group, Inc. agreed to pay $4.3 billion for a 20 per cent stake in Shriram Finance Ltd., a nonbank lender. Emirates NBD completed a $2.75 billion acquisition of 60 per cent of RBL Bank, closing the deal in June. Together, these deals signal that global banks are treating India as a serious, long-term strategic market rather than a peripheral opportunity.

Why China Is Losing Ground

The contrast with China is stark. Despite gradual regulatory liberalisation since 2001, foreign banks' share of China's $70.93 trillion banking market declined to 1.2 per cent in 2024, down from 1.5 per cent in 2020, according to Laurent Doucet, also a partner at Roland Berger.

The structural barriers are significant. Foreign banks seeking to establish locally incorporated units in China must meet a minimum capital threshold of $149 million — nearly three times the $53 million required for wholly owned units in India. While China does permit foreign bank branches with lower minimum operating funds of $29.9 million (RMB 200 million), restrictions severely limit their retail banking activities.

Stagnation in China's Foreign Banking Presence

The number of locally incorporated subsidiaries and foreign branches operating in China has plateaued since 2018, the report notes. A handful of players have reportedly exited retail banking entirely, citing fierce competition from entrenched domestic state-owned banks and digital-first domestic challengers. This stagnation has persisted even as Beijing has nominally opened up the sector to foreign ownership.

What This Means for India's Banking Sector

For India, the influx of foreign capital into its banking system carries both opportunity and oversight implications. Large-scale stake purchases in mid-tier lenders such as Yes Bank and RBL Bank inject fresh capital, but also raise questions for the Reserve Bank of India (RBI) around governance and foreign ownership concentration. Notably, all three major deals in 2025 were structured as minority or majority stakes — a model that keeps Indian management frameworks broadly intact while bringing in global balance-sheet strength.

This comes amid a broader global recalibration of emerging-market banking strategies, with foreign institutions reassessing China exposure and reallocating toward higher-growth, more accessible markets. India's demographic dividend, rising middle class, and digital banking infrastructure make it an increasingly compelling alternative.