Japan’s Banking Giants Deepen Their Bet on India’s Growth Story

• India has emerged as the top overseas market for Japanese companies, with client inquiries rising over 50% in FY2024.

• Mizuho aims to build a strong India–Japan financial corridor through its Avendus acquisition.

• Major Japanese banks are investing billions in Indian financial institutions.

• India’s demographics, digital growth, and low credit penetration offer long-term expansion potential.

• Japan’s saturated domestic market is driving strategic overseas diversification.

When Mizuho Bank’s Global CEO Masahiko Kato spoke to The Economic Times for the first time after announcing the acquisition of Avendus Capital in December, he delivered a message that resonated far beyond a single deal: India has swiftly emerged as the most attractive market for Japanese companies.

Kato outlined Mizuho’s broader vision — the creation of a strong India–Japan economic corridor. The strategy is designed to assist Japanese corporations entering India while also helping Indian businesses expand internationally. By bringing together commercial banking, investment banking, and global advisory services into a unified platform, Mizuho hopes to replicate the success of its integrated model in the United States within the Indian market. The momentum is already visible. According to Kato, inquiries from clients related to India climbed by more than 50% in FY2024 alone.

His remarks shed light on a much larger shift underway. What may seem like a series of isolated investments — whether it is Mizuho’s acquisition of Avendus, minority stakes in Indian financial institutions, or private credit exposure — actually reflects a coordinated, long-term repositioning by Japan’s largest banks. India is becoming central to their future growth strategies.

India at the Core of a Strategic Corridor

For Mizuho, India is not simply another emerging market in its global portfolio. It is a cornerstone of a deliberate effort to strengthen economic ties between Japan and India. The Avendus deal enhances Mizuho’s investment banking capabilities, complementing its established commercial banking presence. Together, the two arms create an integrated offering that can serve Japanese corporates investing in India while also advising Indian firms seeking overseas expansion.

Perceptions in Japan have shifted markedly in recent years. Surveys by the Japan Bank for International Cooperation have ranked India as the top destination for Japanese investment since 2022. Investment flows are projected to reach 1.2 trillion yen in 2025. Discussions in Tokyo boardrooms increasingly center on expanding operations in India rather than elsewhere in Asia.

India’s appeal lies in its fundamentals: a population of 1.4 billion, rising income levels, strong domestic consumption, a dynamic digital ecosystem, and a deep pool of technology talent. Additionally, sectors such as semiconductors, advanced materials, and renewable energy present compelling opportunities. These industries align closely with Japanese companies’ technological expertise and long-term strategic priorities.

Financial Services: The New Growth Frontier

Japanese engagement with India is particularly evident in the financial sector. The country’s largest megabanks — Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho — have stepped up their investments in Indian institutions.

MUFG committed $4.45 billion to Shriram Finance, while SMBC acquired a 20% stake in Yes Bank for $1.6 billion last year. MUFG also invested over $338 million in DMI Finance Private, eventually increasing its holding to 20%. Meanwhile, Daiwa Securities Group has taken a position in Ambit, signaling growing interest from Japan’s capital markets players as well.

Kato attributes this surge to two fundamental drivers. First, bilateral ties between India and Japan — at both governmental and societal levels — are robust and steadily deepening. Second, India’s financial services industry is expanding rapidly across banking, non-banking financial companies, asset management, and investment banking. Japanese investors are not merely seeking incremental gains; they are positioning themselves for what Kato describes as exponential growth in India’s financial ecosystem.

India’s financial landscape is not just growing larger; it is becoming more formalized and sophisticated. As financial inclusion broadens and digital adoption accelerates, the depth and diversity of financial services are expanding at pace.

Structural Strength Meets Structural Constraint

India’s macroeconomic profile strengthens its case. Rising incomes, infrastructure investment, and increasing formalization of the economy are driving demand for credit. Retail lending, vehicle financing, personal loans, and MSME funding continue to gain traction. Credit penetration remains comparatively low, leaving substantial headroom for expansion.

Demographics add another layer of advantage. A young workforce and expanding middle class are creating sustained demand across retail and corporate segments. Combined with rapid digitization and government-led financial inclusion initiatives, the result is a long-duration growth opportunity.

For Japanese banks, the contrast with their home market is stark. Japan’s banking sector operates in a mature and saturated environment dominated by its three megabanks. Population decline and an aging society have dampened household credit growth. Although the Bank of Japan began raising interest rates last year after decades of ultra-loose monetary policy, structural constraints remain. Margins are thin, credit demand is subdued, and many regional banks face consolidation pressures rather than expansion prospects.

In this context, overseas growth is no longer optional — it is essential.

A Long-Term Realignment

Japanese megabanks are confronting the limits of domestic expansion. With limited scope to add customers or significantly increase lending volumes at home, they are looking outward. Emerging markets offer the scale and growth trajectory they seek. Among these, India stands out for its combination of demographic momentum, infrastructure development, and policy-driven financial inclusion.

The growing wave of client inquiries reported by Kato signals that the shift is not confined to executive strategy sessions. Japanese corporations themselves are actively exploring opportunities to integrate into India’s growth cycle.

What is unfolding, therefore, is more than a series of transactions. It is a structural realignment of Japanese capital toward one of the world’s fastest-growing major economies. Mizuho’s acquisition of Avendus strengthens its advisory capabilities. MUFG and SMBC’s equity stakes provide embedded exposure to India’s expanding retail and MSME credit markets. Securities firms such as Daiwa are positioning themselves for capital markets expansion.

At the heart of this transformation lies a simple but powerful acknowledgment — India has become the most promising overseas market for Japanese enterprise. As economic complementarities between the two nations deepen, Japanese banks are positioning themselves to facilitate the trade, investment, and financial flows that will define the next chapter of the India–Japan partnership.