Quarterly shareholding knowledge reveals FIIs elevated their publicity to just about all main PSU banks between June and September 2025. Financial institution of Baroda noticed its FII shareholding rise from 8.08% to eight.71%, whereas Canara Financial institution gained 0.51 share factors to 11.89%. Financial institution of India posted one of many sharper jumps, with overseas possession climbing from 3.53% to 4.24%, a 0.71 share level enhance.
Amongst smaller lenders, Financial institution of Maharashtra noticed FII shareholding rise by 0.46 share factors to 2.35%, and Indian Abroad Financial institution recorded a 0.23 share level uptick to 0.31%. State Financial institution of India, the nation’s largest lender, noticed overseas stakes enhance from 9.32% to 9.57%, whereas Union Financial institution of India moved up from 7.70% to 7.86%.
A number of names, nonetheless, bucked the development. Central Financial institution of India and Punjab & Sind Financial institution noticed marginal declines of 0.09 share factors every, whereas UCO Financial institution’s FII holding remained flat at 0.13%.
The $4 billion catalyst
The renewed FII curiosity comes amid rising chatter that the federal government might raise the overseas possession cap in PSU banks to 49% from the present 20%. The transfer, if cleared, might set off billions in passive inflows and reshape the sector’s investor base.
In accordance with Nuvama Institutional Equities, such a coverage shift might unlock as much as $4 billion throughout PSU lenders. “If there’s any fact to this growth, PSU banks might simply rally 20–30% in anticipation of such large inflows,” Nuvama mentioned.The brokerage estimates State Financial institution of India might entice inflows of about $2.2 billion, adopted by Indian Financial institution at $459 million, Financial institution of Baroda at $362 million, Punjab Nationwide Financial institution at $355 million, Canara Financial institution at $305 million, and Union Financial institution of India at $294 million.A Reuters report just lately mentioned the finance ministry is in discussions with the Reserve Financial institution of India to permit as much as 49% direct overseas possession in state-run banks whereas sustaining the federal government’s minimal 51% stake.
“From a passive flows standpoint, the important thing affect would come by way of MSCI indices if the change goes by way of,” Nuvama famous, including that any changes would possible be carried out “in a staggered method throughout a number of overview cycles.”
Technical power meets valuation consolation
The PSU financial institution rally has been backed by each technical momentum and bettering steadiness sheet fundamentals. The Nifty PSU Financial institution index ended October at 8184.35, up from 7526.75 on the finish of September. On October 31, state-run financial institution shares prolonged features, with Union Financial institution surging practically 5%, and Canara Financial institution rising as much as 2.4%, as merchants wager on larger FII limits and sector re-rating potential.
Shibani Sircar Kurian of Kotak Mahindra AMC mentioned, “Throughout the PSU banks, there are particular picks the place among the bigger PSU banks are higher positioned to learn each from credit score progress selecting up, particularly on the retail entrance in addition to margins bottoming out as a result of your price of deposits begin to play out by way of decrease price of funds and these banks which have a greater retail legal responsibility franchise are effectively positioned.”
Vishnu Kant Upadhyay of Grasp Capital famous that “a number of main PSU banks are exhibiting bullish value buildings,” including that “a number of names have additionally registered contemporary breakouts, signaling potential for brand new document highs.” He mentioned any short-term pullbacks could possibly be “alternatives to build up for the medium to long run.”
Not everyone seems to be shopping for the euphoria
Some analysts warn the rally might not maintain past the quick time period. Seshadri Sen of Emkay World cautioned, “PSU banks are set for a powerful H2 FY26, however the momentum is about to fizzle out in FY27E.”
“Mortgage progress is about to speed up with the general market momentum, however with restricted deltas. Alternatively, the drop-off in treasury earnings and excessive opex progress as a consequence of a brand new wage settlement would drive decrease ROAs and ROEs for many PSU banks. The comparatively engaging valuations lack a long-term rerating set off, and we see no case for a long-term funding thesis,” mentioned Sen.
“Even the short-term H2 FY26 commerce is in danger if lengthy bond yields spike, which is an actual risk if tax collections undershoot,” Sen mentioned.
For now, the September-quarter knowledge makes one factor clear — FIIs are steadily rebuilding publicity to India’s state-run banks. Whether or not this quiet accumulation turns right into a sustained uptrend will possible hinge on the federal government’s subsequent coverage transfer.
Additionally learn | PSU Banks acquire as much as 5%. Listed here are 3 elements driving the surge in state-run lenders
(Disclaimer: Suggestions, recommendations, views and opinions given by the consultants are their very own. These don’t signify the views of the Financial Instances)
