money from foreign investors
Does foreign investment play an important role in the progress of India’s financial institutions? If you are also thinking the same then you are absolutely right, in fact the leading rating agency Fitch has acknowledged that foreign shareholders play an important role in the growth of Indian financial institutions. Fitch says significant stakes from foreign shareholders could be positive for the loan segment of Indian financial institutions as it provides long-term capital and in some cases improves operating standards.
However, foreign interest alone cannot be considered a reliable indicator of a strong loan segment, the rating agency said in a statement. Transactions that strengthen internal controls, risk management and leadership accountability have greater loan-related value than deals done solely for financial gain.
Foreign investors have confidence in India’s growth
Fitch said the recent growing interest from foreign investors reflects their growing confidence in India’s long-term growth prospects, financial sector regulation and supervision and better risk management framework. The rating agency believes that investors will look for platforms that have scalable delivery capabilities and local expertise. It said acquirers with experience in developed markets can improve risk control and monitoring. Also, the presence of reputable strategic shareholders can be helpful in reducing the cost of capital. These factors may contribute to strengthening the independent credit segment of financial institutions.
Where are foreign investors investing more money
Fitch said in the statement that a significant stake of foreign shareholders could be positive for the debt segment of Indian financial institutions through long-term capital and funding flexibility, business expansion and, in some cases, improvement in operating standards. The rating agency believes that foreign shareholders are more likely to gain control in non-banking financial institutions (NBFIs) than banks as rules allow full foreign ownership in NBFIs. For example, Sumitomo Mitsui Financial Group acquired 100 percent of Fullerton India Credit Company (now SMFG India Credit), thereby increasing representation on the board of directors and management. There was also coordination in sales and financing.
