India's dynamic fintech landscape is on the cusp of a significant transformation, moving from fierce competition to strategic consolidation. Senior executives from Kotak Investment Banking have forecast that deal activity within the sector will accelerate markedly by 2026, driven by market fragmentation and the ongoing challenge of achieving profitability.
The Push Towards Building Together
Speaking at the firm's annual press conference, experts highlighted that venture-backed fintech companies, after years of aggressive competition, are now looking at mergers as a more sensible path to growth. Rajat Rajan, Managing Director for Digital and Robotics, pointed out that despite intense rivalry, profitability remains elusive for many. "It makes more sense to build together than fight for the same market one-on-one," he stated.
Rajan added that startups are increasingly under pressure from investors to show clear paths to exits or liquidity. This shift in strategy is already visible in recent transactions such as Groww acquiring Fisdom, Amazon buying Axio, and PayU increasing its stake in Mindgate to around 70%. "We feel that this will be the year when, in some way, fintech will be reborn," Rajan remarked. "Maybe in a year's or two years' time, you'll see fewer, but larger, more robust companies."
Drivers and Dominant Players in the M&A Wave
The consolidation is expected to be led by a diverse set of players. According to Rajan, acquirers could include traditional banks, non-banking financial companies (NBFCs), or large established fintech firms. Furthermore, there is anticipated inbound interest from major global technology groups who view India as a crucial, albeit complex, market. These global players may seek entry through selective partnerships or acquisitions.
This fintech trend aligns with the broader, robust growth in India's merger and acquisition (M&A) activity in 2025, which reached $121 billion—a 14% increase from the previous year's $107 billion. Sourav Mallik, Managing Director and Deputy CEO of Kotak Investment Banking, attributed this surge to expected strong credit growth, significant inbound capital flows, and high demand for technology assets. The financial services, technology, and industrials sectors together accounted for a dominant 65% of the total M&A volume.
Notable cross-border deals in financial services this year included:
- MUFG's $4.4 billion stake in Shriram Finance.
- Emirates NBD's $3 billion acquisition of control in RBL Bank.
- Sumitomo Mitsui Banking Corp's (SMBC) $1.6 billion investment in YES Bank.
Mallik noted that many of these active players aim to offer a full suite of products in India, which may lead to follow-on transactions in adjacent business segments.
M&A Outpacing Capital Markets in Activity
Ramesh Srinivasan, Managing Director and CEO of Kotak Investment Banking, observed that India has witnessed a more pronounced increase in M&A activity compared to capital markets. "While capital markets have been strong, M&A volumes have been consistently healthy, with a run rate of about $70 billion over the last six months," he said. He specifically highlighted that the financial services sector has shown exceptional momentum across both M&A and capital markets.
Nevertheless, the capital markets, particularly the Financial Institutions Group (FIG) sector, remained very active in the past year. Jayasankar Venkataraman, Managing Director at Kotak Mahindra Capital Co. Ltd., pointed out that major listings like the large IPOs from ICICI Pru, Tata Capital, and HDB Financial Services dominated most of the fundraising in the FIG sector. "The three IPOs dominated most of the fundraising in the FIG sector this year," Venkataraman confirmed.
The consensus from Kotak's leadership paints a clear picture: the Indian fintech ecosystem is maturing. The coming years are likely to be defined not by the birth of countless new startups, but by the strategic coming together of existing players to build sustainable, profitable, and dominant financial technology enterprises.
