India has approved the acquisition of a majority stake in IDBI Bank by Canada’s Fairfax Financial Holdings in a $5.6 billion deal, marking the largest foreign takeover of an Indian bank to date. Fairfax will acquire close to 61 percent of the Mumbai-based lender, which is one of the country’s largest banks with assets totaling approximately $49 billion and a network of 2,100 branches.

The transaction, announced on Wednesday night by the Indian government, is seen as a significant step in New Delhi’s ongoing policy to privatize state-owned banks and attract greater foreign investment into the banking sector. Finance Minister Nirmala Sitharaman has emphasized the government’s aim to consolidate the banking industry by reducing its holdings in public sector banks and creating larger, more competitive institutions.

IDBI Bank’s financial difficulties had led to multiple capital infusions by the government in recent years. The bank was placed under enhanced regulatory scrutiny by the Reserve Bank of India in 2017 amid efforts to reduce the state’s role in the lender. Analysts from Indian financial services firm Motilal Oswal described the approval as a “strategic restructuring” aligning with the government’s broader disinvestment targets for the fiscal year, while underscoring its intention to strengthen the banking ecosystem.

Fairfax Chairman and CEO Prem Watsa characterized the deal as a “once-in-a-lifetime opportunity” to secure a controlling interest in a bank within one of the world’s fastest-growing economies.

This acquisition is distinctive among recent foreign investments in India’s banking industry, as previous deals primarily involved minority stakes in private sector lenders. Examples include Japan’s Sumitomo Mitsui Financial Group acquiring a $1.6 billion minority stake in Yes Bank, Dubai’s Emirates NBD purchasing $3 billion for control of RBL Bank, and Mitsubishi UFJ Financial Group taking a 20 percent stake in Shriram Finance for $4.4 billion, with prospects of increasing control through further investment.

IDBI shares reacted to the news with a 9 percent rise ahead of the government announcement, followed by a 7 percent decline the day after. Overall, India’s banking stocks have outperformed the broader market, with the bank index dropping 6.5 percent compared to a 12.4 percent fall in the Nifty 50 index this year, amid challenges including rising oil prices and a weakening rupee.

The Fairfax deal also occurs as Canada and India work to mend diplomatic relations following tensions earlier this year, sparked by Canadian allegations of Indian involvement in the 2023 killing of Hardeep Singh Nijjar, a Canadian citizen and Sikh activist.