The banking, financial services and insurance sector saw an accelerated fall in deals in the March quarter both in terms of value and volume on investors caution and the outlook is rather mixed as with regulatory changes players are adjusting their strategies and investors are waiting for the opportune moment.

Total deals in the first quarter of 2024, including mergers and acquisitions and private equity investments, came in at 52 for a total value of $1.7 billion. The deals volume were down 7 per cent sequentially and 14 per cent in value, according to a Grant Thornton report.

There were 13 M&A deals for a total value of $973 million, both down 28 per cent sequentially. In the previous quarter too deals had fallen 25 per cent in volume and 10 per cent in value terms.

While private equity investments showed an uptick it was marginal. In volume terms PE deals rose a modest 3 per cent. In value terms it was 18 per cent higher at $681 million. The deals value got a boost from Sumitomo Mitsui Financial Inc taking a 25 per cent stake in SMFG India Credit Company for $700 million.

“Regulatory changes such as the liberalisation of insurance regulations and relaxation of FDI norms along with RBI regulations for NBFCs and tightening of unsecured lending rules are expected to impact deal activity in the financial services sector,” Grant Thornton said.

It added that RBI’s digital lending guidelines would likely be a booster for the fintech sector, attracting PE money. In fact fintechs accounted for the most deals, though the values were lower compared to banks and NBFCs.

Apart from the Sumitomo transaction the other big deal in the sector was that of Mizuho Bank picking up a minority 15 per cent stake in Kisetsu Saison Finance for $145 million.

In the private equity space, the biggest deal was Advent International and Multiples PE investing $233 million in Svantantra Microfin and TPG-backed SK Finance raising around $160 million from a clutch of funds including Norwest Venture Partners, Baring Private Equity India, Axis Alternatives and Duro Capital.

Big deal momentum is still there, but on a case-to-case basis. For instance, according to a media report Japan’s MUFG is looking to pick up 20 per cent stake in HDFC Bank subsidiary HDB Financial Services at a valuation of $9-10 billion.

“Investors are being more cautious about nature of investments,” said Grant Thornton’s Partner and FinTech Industry Leader, Vivek Iyer.

“There is an effective search for value rather than irrational exuberance. The last quarter has witnessed a lot of investments (even though lesser than the previous quarters) in the credit-oriented institutions. India continues to remain a bright spot and we expect investors to have a continued interest in India as an investment destination.”