Synopsis: Foreign investors are showing growing confidence in India’s banking sector, with rising stakes in both private and public sector banks. This article highlights the top Indian banks attracting significant foreign investments in 2025 and the factors driving this trend.
Foreign Institutional Investors (FIIs) hold significant sway in shaping India’s banking sector. Their involvement depicts confidence from abroad, impacts liquidity and prices of shares, and captures broader valuation trends in the Indian market. In 2025, there is renewed interest catalyzed by policy changes, inclusion into global indices, and optimism since the rate cuts for FIIs to reallocate their bets in private and public banks.
Overview of FII Investments in Indian Banks
- FIIs comprise roughly 21% of total shareholdings in NSE-listed Indian banks, and are significantly more concentrated in the private sector.
- For instance, in the case of private banks, FIIs account for 35% to approximately 45% of total shareholding, which is much higher than the 4-12% average for the top 5-10 public sector banks (PSBs).
- Contrastingly, the gap has, on average, narrowed in 2025 as FIIs switched back to buying PSUs, reflecting anticipation of policy changes to raise the FII limit in PSBs from 20% to perhaps 49%.
Top Private Banks Attracting Foreign Investments
- HDFC Bank: As of the September 2025 FII holding 48.4% in HDFC bank
- ICICI Bank: Foreign Institutional Investors (FIIs) held approximately 45.56% of ICICI Bank’s shares as of September 2025.
- Axis Bank: As of September 2025, Foreign Institutional Investors (FIIs) hold 41.89% of Axis Bank’s shares.
- Kotak Mahindra bank: As of September 2025, Foreign Institutional Investors (FIIs) hold 29.75% of Kotak Mahindra Bank’s shares. This is a decrease from previous quarters, as FII holdings were 32.34% in June 2025 and 32.65% in March 2025.
- RBL Bank: As of September 2025, the Foreign Institutional Investor (FII) holding in RBL Bank was 15.48%. This was a slight decrease from the previous quarter’s holding of 17.56%
- Yes Bank: As of the September 2025 quarter FII holds 44.95% stake in Yes Bank
- Current developments: FIIs (foreign institutional investment investors) favor private banks given better profitability, digitalization, low NPAs and international standards when it comes to good governance. Noting that the “big” foreign funds that have an investment in one or more private sector banks include: Blackrock, Vanguard, GQG partners, Capital Group .
- Why do FIIs prefer Private Banks: Strong balance sheets, RoE ranging and/or between 12 – 20%, management quality and scale related to digital banking, makes the following position attractive to the normal FII cap.
Also read: Have Unclaimed Money Sitting in Old Bank Accounts? Here’s How RBI Helps You Recover It
Top Public Sector Banks Attracting Foreign Investments
- State Bank of India (SBI): FII holding approaching 9.6% Q3 2025 vs 9.3% Q2 2025
- Bank of Baroda: FII holdings surged from 8.08% in June 2025 to 8.71 % in September 2025, a rise of 0.63%.
- Canara Bank: FII holdings surged from 11.38% in June 2025 to 11.89% in September 2025, a rise of 0.51%.
- Union Bank: FII holdings surged from 7.7% in June 2025 to 7.86% in September 2025, a rise of 0.16%.
- Bank of Maharashtra: FII holdings surged from 1.89% in June 2025 to 2.35% in September 2025, a rise of 0.46%.
- Bank of India: FII holdings surged from 3.53% in June 2025 to 4.24% in September 2025, a rise of 0.71%.
- Current trends: As of the end of September 2025, Foreign Institutional Investors have continually bought into many of the sizable public-sector banks. Some public-sector banks were performing better than the Nifty PSU Bank index which appreciated 9% in just the month of October.
- Why Public Sector banks: Improved asset quality (ie economy rebounds), government recapitalization of banks, lower NPAs, credit growth and raising foreign ownership limits (FIIs).
| Private Sector Banks | Public Sector Banks | |
| Avg. FII Holding | 35–45% | 4–12% |
| Profitability (RoE) | 12–20% | 7–14% |
| Governance | Strong | Improving |
Foreign Investors have historically favored private banks for growth and stability, but are increasingly allocating to PSBs, hoping for policy-driven rerating and value gains.
Major Factors Impacting FII Trends
- Regulatory Policy: RBI and SEBI are reviewing ownership caps on FIIs (especially for PSBs); any relaxation in this regard could flag a movement of billions of dollars into India.
- Macro Environment: Domestic rate cuts, stability in the rupee and relative strength of the macro economy is leading both local and foreign investors to see the Indian banks as value.
- Reforms & Innovation: Sectoral reforms, privatization and innovation in digital banking will continue to pull FII.
- Global Index Inclusion: As Indian banks get included in FTSE/MSCI indices, passive FII inflows will also start to flow in.
Conclusion
As per the previous sections, the next chapter will be developed from policy level reforms, banking sector performance, progressing towards India’s digital transformation across the banking sector – with FIIs leading capital flows, foreign valuation, and competition across India’s banking sector.
Written By Rachna Rajput