FIIs boost stakes in public sector banks as confidence rebounds
What's the story
Foreign institutional investors (FIIs) have increased their stakes in most public sector banks during the September 2025 quarter. The move indicates a renewed confidence in India's public banking sector. The buying was seen across almost all major PSU banks, including Bank of Baroda and State Bank of India (SBI). This comes as the Nifty PSU Bank index jumped nearly 9% in October.
Stake increases
Significant increases in FII ownership for major lenders
Quarterly shareholding data shows that FIIs have increased their stakes in nearly all major PSU banks between June and September 2025. Bank of Baroda's FII stake rose from 8.08% to 8.71%, while Canara Bank's increased by 0.51% points to a total of 11.89%. Bank of India saw one of the biggest jumps, with foreign ownership increasing from 3.53% to a whopping 4.24%.
Smaller banks
Smaller banks also see rise in foreign stakes
Among smaller lenders, Bank of Maharashtra's FII stake increased by 0.46% points to a total of 2.35%. Indian Overseas Bank also witnessed a minor increase of 0.23% points in its foreign ownership, taking it up to 0.31%. SBI, India's largest lender, saw its foreign stakes rise from 9.32% to a total of 9.57%, while Union Bank of India's ownership increased from 7.70% to an impressive 7.86%.
Minor declines
Minor declines for some banks, status quo for others
Despite the overall trend of increasing FII stakes, the Central Bank of India and the Punjab & Sind Bank witnessed slight declines of 0.09% points each in their foreign ownership. UCO Bank's FII stake remained unchanged at 0.13%. The renewed interest from FIIs comes amid speculation that the government may increase the foreign ownership limit in PSU banks from 20% to a whopping 49%.
Policy impact
Proposed policy change could lead to massive inflows
If the proposed policy change is implemented, it could lead to billions in passive inflows and transform the investor base of PSU banks. Nuvama Institutional Equities estimates such a shift could unlock up to $4 billion across these lenders. The brokerage also predicts SBI could attract inflows of about $2.2 billion, followed by Indian Bank at $459 million and Bank of Baroda at $362 million, among others.
Talks ongoing
Finance ministry, RBI discussing potential increase in foreign ownership
A Reuters report recently revealed that the finance ministry is in talks with the Reserve Bank of India (RBI) to allow up to 49% direct foreign ownership in state-run banks while keeping the government's minimum stake at 51%. Nuvama noted that "the key impact would come via MSCI indices if the change goes through," adding any adjustments would likely be implemented "in a staggered manner across multiple review cycles."