India’s Big-Bang Financial Reforms Target Foreign Money

December 19, 2025 by and

India’s long-awaited package of financial services reforms is setting the stage for a surge of foreign capital into the world’s fastest-growing major economy.

In the latest step, lawmakers passed a bill this week allowing up to 100% foreign ownership of insurance firms, bolstering an industry long viewed as under-penetrated and capital-starved. Regulators have also overhauled rules for banks, pension funds and capital markets as they aim to shift savings from idle assets such as gold and property toward equities, bonds and long-term investments to finance factories and infrastructure.

All these reforms come as Prime Minister Narendra Modi and his administration want to make India a developed economy by 2047,a goal that requires economic growth of about 8% per year, and policymakers are betting on rapid industrialization and deeper capital markets to achieve this target.

The drive to attract foreign capital has gained urgency after US President Donald Trump slapped tariffs of 50% on Indian goods in August, one of the highest rates in the world. The move has crimped exports to India’s biggest market, potentially threatening its manufacturing ambitions.

“The latest spate of reforms will help revive global investor sentiment amid tariff worries,” said Pramod Kumar, chief executive officer of Barclays Plc’s India business. Foreign investment flows are likely to increase, which should create more opportunities for banks like Barclays, he added.

A flurry of recent deals highlights the growing appetite for Indian assets. Mitsubishi UFJ Financial Group Inc. said Friday it is acquiring a minority stake in Shriram Finance Ltd. for $4.4 billion, the single biggest foreign investment in India’s financial services sector. This was days after Mizuho Financial Group Inc. agreed to buy a controlling stake in KKR & Co.-backed investment bank Avendus Capital. Sumitomo Mitsui Financial Group Inc. became the biggest shareholder of Yes Bank Ltd. in a landmark deal earlier this year.

In all, India recorded net foreign direct investment — typically long-term capital — of $7.6 billion from April to September, more thandouble the rate of a year earlier, according to data from the Reserve Bank of India.

The opening of the insurance and pensions sectors, new bank licenses and the big investments from Japan demonstrate “deregulation in action,” said Vivek Ramji Iyer, a partner at Grant Thornton Bharat.

The insurance move caps years of debate inside government and industry, and signals a willingness to let global players run insurers on their own if they commit capital and expertise. Firms including Allianz SE, AXA SA, and Nippon Life Insurance Co. have operated in India for years, but full ownership is expected to give companies greater flexibility to scale up investments and pursue growth opportunities.

The shift also applies to the $177 billion pension fund sector, paving the way for 100% foreign ownership of companies in that space, the top pension regulator said in an interview this week. Overseas investment in both industries had been capped at 74%.

The broad reforms may alert any foreign portfolio investors who have spent the past year holding off on allocating to India that “now is as good a time as any to ensure they don’t miss out on the next leg of growth in an economy that – arguably to a greater degree than ever before – is firing on all cylinders,” said Andrei Stetsenko, partner at New York-based Farley Capital.

Bold Moves

For some market participants, the reforms are the boldest since the early 2000s, when India liberalized the telecommunication and electricity sectors and rolled out fiscal and foreign investment guidelines.

Pension and insurance money, whether domestic or foreign, tends to be patient — precisely the kind of capital needed for highways, power plants and industrial corridors. In a separate move this week, India’s parliament passed a bill that will open up its nuclear industry to private firms and unlock investment opportunities worth $214 billion. Modi has also enacted tax cuts and labor-law reforms to spur consumer and business spending.

Encouraging consolidation is also a central plank of India’s strategy. The total volume of transactions targeting Indian firms has climbed 15% this year to nearly $90 billion, with Japanese buyers involved in big banking deals.

Easier rules for mergers and acquisitions, combined with a more supportive stance from regulators, are aimed at helping Indian companies scale up. State-run banks, still dominant lenders, are now allowed a more active role in funding takeovers, giving them a chance to compete with their foreign counterparts.

Elsewhere, capital markets are also booming. Indian firms have raised a record $22 billion via initial public offerings so far in 2025, while the Nifty 500 Index – the broadest gauge for local stocks – has delivered total shareholder returns of 122% over the last five years, outperforming the S&P 500.

To enhance trading further, India’s securities market regulator this week reduced the fees paid by domestic mutual funds to brokerages, while also slashing the basic management charge, in one of the most sweeping changes ever to the industry’s fee structure.

“I do see positive impact of reforms but it will be slow,” said Abhishek Thepade, Oslo-based portfolio manager at DNB Asset Management AS. “The problem has been the lack of trade deal which dampens sentiment,” he said.

Despite the reforms, local stocks have underperformed global rivals this year, with the Nifty 50 Index rising just 10% as valuations appear stretched. Foreign investors have withdrawn about $18 billion this year from equity markets, and are set to mark their biggest annual withdrawal on record. The rupee’s 5% slide this year, making it Asia’s worst-performing currency, is emerging as a near-term threat to a recovering stock market.

Still, the current volley of reforms, along with rate cuts and the relative underperformance, make the market more attractive, said Joshua Crabb, head of Asia-Pacific equities at asset manager Robeco. “Reform is always good, but it takes time and impacts happen with a lag,” he said.

Photograph: Buildings in Mumbai, India; photo credit: Abeer Khan/Bloomberg

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