RBI may allow Emirates NBD to acquire controlling stake in RBL Bank

While India allows 74% foreign investment in private banks, the shareholding of a single foreign institution is limited to 15% by the RBI unless the regulator gives exceptional approval

India's central bank is open to allowing Dubai-based lender Emirates NBD to acquire a controlling stake in RBL Bank, two sources said, as the regulator seeks to attract foreign investment and strengthen the country's mid-sized banks.

Indian media and Reuters reported late on Monday that Emirates NBD is looking to buy up to a 25 per cent stake in RBL Bank. Under India's takeover rules, a stake purchase of 25 per cent requires the acquirer to make an open offer for another 26 per cent from retail investors, giving NBD a 51 per cent stake.

Shares of RBL Bank surged as much as 3.3 per cent to ₹299.6 on Tuesday, their highest level since January 2024, after the reports about NBD's potential stake purchase.

NBD declined to comment on a query sent on Monday evening. RBI and RBL Bank did not respond to requests for comment on the possible stake purchase.

While India allows 74 per cent foreign investment in private banks, the shareholding of a single foreign institution is limited to 15 per cent by the Reserve Bank of India (RBI) unless the regulator gives exceptional approval.

An informal approval from the RBI is in place, said one of the sources, adding that formal approvals will be sought after a proposal is submitted.

The deal is expected to be announced over the next week, this source said.

The Reserve Bank of India has increasingly welcomed foreign investment, including its approval in August of Japan's Sumitomo Mitsui Banking Corporation's (SMBC) acquisition of a 24.9 per cent stake in Yes Bank.

The central bank views such deals as a means to bolster governance and ensure stability for mid-sized banks, sources said.

"The RBI wants to strengthen mid-sized banks and enable them to grow. While these banks are well-capitalised now, they may struggle to withstand crises without strong shareholders," one of the sources said.

Both the sources declined to be identified as the discussions are private.

Reuters reported in June that the RBI was considering possible rule changes to allow higher foreign ownership in Indian banks, amid overseas buyers' interest and India's aim to attract overseas investment.

The central bank's strategy mirrors its approach with Yes Bank, which saw SMBC execute a stake purchase, completed last month, signalling a broader push to replicate similar foreign-backed growth models for mid-sized banks.

"Yes Bank was the opening. They took the first step, executed successfully, and it can be replicated here," a second source said.

Emirates NBD, alongside others like Canada's Fairfax Financial Holdings, was also contending for a 60 per cent stake in government-owned IDBI Bank until recently. It is unclear if it will continue to explore that deal if it pursues a stake in RBL.

Analysts at ICICI Direct Research said the entry of a globally well-capitalised promoter like Emirates NBD could improve governance and boost investor confidence, potentially reshaping market sentiment for mid-sized banks in India.

RBL shares were last up 1.2 per cent on Tuesday. They have gained 85 per cent this year, bucking the benchmark Nifty 50 index's 8 per cent decline as investors favoured the bank's strong growth and potential for investment by a foreign player.