SBI could receive $466 million in passive inflows if FII limit is raised

State Bank of India could draw as much as $466 million in passive inflows if the cap on foreign institutional investment in public-sector banks is raised, Nuvama Institutional Equities said.

The brokerage said a possible move to lift the ceiling on foreign holdings from 20% to 26% would create meaningful room for additional MSCI index weightings. “From a passive flows perspective, the big impact would come via MSCI indices if the change goes through,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.

The Economic Times had reported earlier this week that the government is weighing a proposal to raise the foreign investment limit in public-sector banks as part of broader reforms to boost capital and strengthen balance sheets. Currently, foreign direct investment in PSBs is capped at 20%, compared with 74% for private banks. Officials have indicated that while foreign ownership could rise, the government will retain at least a 51% stake to preserve the public character of the banks.

Also read | India may raise foreign investment limit in PSU banks

SBI seen as key beneficiary

Among state-owned lenders, SBI stands out as the largest beneficiary, with potential passive inflows of $466 million, equivalent to about 47 million shares, Nuvama estimated.

Other banks likely to see inflows include Bank of Baroda and Punjab National Bank, each with around $76 million, Canara Bank with $64 million, and Union Bank of India with $62 million. Additionally, Indian Bank could see fresh inclusion in the MSCI indices, attracting an estimated $177 million, the brokerage added.

Financial services secretary M. Nagaraju recently said PSBs have moved beyond “the phase of survival and stability” and are positioned to become champions of growth and innovation as India works toward its 2047 development goals, Economic Times has reported earlier.

While talk of a higher ceiling has circulated for years, the timing of any change remains uncertain. “Timeline? Hard to pin down. The proposal could take a couple of quarters to pass, and only after that would MSCI reflect the higher headroom in its indices,” Pagaria said.

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