Banking and Financial Sector Developments - Newspaper summary

 The sources highlight several critical developments in the Indian Banking and Financial Sector in October 2025, situating these changes within the context of domestic economic acceleration, strategic foreign investment, regulatory shifts, and technological modernization.

I. Strategic Inflows and Banking Sector Transformation

The most significant development is the massive influx of foreign capital into India's mid-sized private banking sector, signaling a shift in global confidence and potential for strategic transformation.

RBL Bank and Emirates NBD Deal

• Emirates NBD Bank (ENBD) proposed acquiring a 60% stake in RBL Bank through a primary infusion of ₹26,850 crore ($3 billion).
• This deal is described as the largest foreign direct investment (FDI) and equity fundraise in India’s banking sector to date.
• The deal is seen as signaling the second coming of foreign banks in India and is expected to open a floodgate of more such transactions, potentially targeting other mid-sized private sector banks.
• RBL Bank's Ambition: MD & CEO R Subramaniakumar stated the bank aims to "exit the mid-, small-size bank league and enter the big bank league" using this capital boost.
• Strategic Synergies: Key synergies are anticipated in export-import and international business, leveraging ENBD’s strong presence in corridors with a large pool of Indian remittances. The second major area of synergy is wealth management, using ENBD's international product portfolio to tap into Indian High-Net-Worth Individuals (HNIs) and Ultra HNIs.
• Regulatory Comfort: Bankers and consultants believe the Reserve Bank of India (RBI) is now "more comfortable with the idea of more foreign capital in banking," signaling greater flexibility to enable strategic capital to play a larger role in local banks that need to bolster their balance sheets. The RBI seeks strategic investors who will remain invested for at least a decade or two.
• Inorganic Growth: RBL Bank's management stated the option for inorganic growth is available following the investment completion, although it is too early to decide on its exercise.
• Timeline: The bank is working to secure approvals from shareholders (scheduled for November 12) and the RBI, anticipating the transaction could take 6–9 months to complete, due to the lack of precedent.

Other Foreign Inflows

• The ENBD-RBL deal follows other major recent investments, such as Sumitomo Mitsui Banking Corp. (SMBC) completing the acquisition of a 20% stake in Yes Bank (with approval to potentially reach 24.2%) in September.
• Abu Dhabi-based Avenir Investment RSC agreed to acquire a 43.46% stake in Sammaan Capital for $1 billion.
• Japan’s MUFG is reportedly in talks to acquire a controlling stake in Avendus Capital, valuing it at around $800–900 million.

II. Credit Growth Driven by Policy Triad and Consumption

The banking sector is actively responding to macroeconomic policies aimed at accelerating consumer demand, resulting in accelerated credit growth projections.

Retail and MSME Credit Boost

• The combination of tax benefits, GST rate cuts (GST 2.0 reforms), and interest rate cuts is referred to as a "triad" that is visibly improving economic activity.
• Bankers expect retail credit growth to rise over 20% in H2FY26, a significant jump from the 14–15% growth seen in H1.
• The GST rate reduction is specifically expected to boost advances (credit growth) in the retail and MSME sectors by an estimated 1 to 2 per cent across the system.
• HDFC Bank's MD & CEO stated that this visible improvement provides an opportunity to accelerate loan growth, which is expected to sustain.

Corporate Loan Reversal

• In a reversal of the trend seen over the past year, large-sized banks have reported robust growth in their corporate loan portfolios in Q2FY26.
• Axis Bank's corporate loans grew 20% year-on-year in Q2, significantly higher than the 8–9% seen in the previous two quarters, driven by specific lending opportunities.
• Bank of India reported corporate loan book growth of 12% year-on-year in Q2 and has a corporate loan pipeline of over ₹50,000 crore slated for disbursement in Q3 and Q4.
• Growth Opportunities: Loan proposals and disbursements are linked to growth opportunities in key sectors, including data centers, warehousing, solar PV modules, batteries, EVs, natural gas, lease rental discounting, copper refineries, and oxygen plants. This indicates a potential pickup in private capital expenditure.
• PNB's Project Financing: Punjab National Bank (PNB) is seeing strong sanctions in its corporate book (₹1.78 lakh crore), anticipating growth in corporate loans to reach 8-9% in Q3 and double-digits in Q4 of FY26. PNB is focusing on good quality project loans, particularly in renewable energy (where exposure surged to ₹20,000 crore), steel, food processing, telecom, road, power, and data centers.

III. Festive Lending Push and Operational Dynamics

Banks are aggressively driving credit during the Diwali festive season, demonstrating favorable pricing and promotional strategies.

Aggressive Festive Offers

• Banks have rolled out a host of lucrative offers to maximize business during Diwali 2025, including cashbacks, discounts, sharply discounted processing fees, and lower interest rates.
• HDFC Bank is offering personal loans at 9.99% interest rate with zero foreclosure fees (for certain credit scores/loan amounts) and home loans starting at 7.4%.
• ICICI Bank is offering special processing fees for home and auto loans, along with significant cashbacks on electronics (e.g., up to ₹6,000 instant cashback on iPhone 17 purchases).
• Bank of Baroda is offering home loan rates starting at 7.45% with nil processing fees.
• IndusInd Bank is offering up to 50% off on processing fees across various loan products, with personal loan rates starting at 10.49%.

Interest Rate Outlook and Margins

• PNB expects the impact of policy interest rate reductions to be felt with a lag in the cost of deposits, as older, higher-rate deposits (like the 400-day special deposit scheme at 7.25%) mature and renew at lower rates (currently around 6.4%).
• PNB anticipates improvement in its net interest margin (NIM), expecting a 5–7 basis points improvement in Q3 and 10–12 basis points improvement in Q4 of FY26, as the entire deposit base gets repriced.

IV. Digital and Infrastructure Developments

Developments in digital finance and public infrastructure continue to reshape the delivery of financial services.

Open Network for Digital Commerce (ONDC) in Finance

• ONDC is expanding into financial services, aiming to create an "actual financial internet" where discovery, verification, and delivery of products like loans, insurance, and mutual funds are interoperable.
• It operates on the same digital public infrastructure rails as UPI.
• The network eliminates the reliance on walled gardens, reducing intermediaries and potentially lowering costs, which enables smaller ticket size SIPs and helps small distributors.
• ONDC is currently active in loans and mutual funds, with 19 Asset Management Companies (AMCs) already live. This allows any customer on an ONDC-integrated app to access funds from any partnered AMC.
• ONDC is actively laying pipelines for future insurance offerings, gold loans, credit cards, and loans against mutual funds.

EPF Withdrawal Reforms

The government has proposed major reforms to the Employees’ Provident Fund (EPF) withdrawal rules, impacting liquidity management for employees:

• Easier Partial Withdrawal: Rules for partial withdrawals are being materially simplified, consolidating 13 grounds into three categories (essentials, housing, special circumstances). The required minimum service period for all withdrawals is standardized to just one year (down from five to seven years).
• Access in Unemployment: Under new rules, employees facing unemployment can immediately access up to 75% of their account balance (including the employer’s share) under the 'special circumstances' category, with minimal documentation.
• Final Withdrawal Restriction: The waiting period for final, complete withdrawal post job loss is proposed to increase from two months to 12 months (for the remaining 25% of the corpus). This measure aims to prevent frequent account closures and ensure continuity of EPF accounts/UANs, which is necessary for pension benefits.