FPI interest in private banks on the rise

Private sector lenders Bandhan Bank, YES Bank, RBL Bank and Axis Bank are among the major gainers of the record foreign fund flow into the Indian equity market during the current financial year.

According to latest shareholding data, foreign portfolio investors (FPIs) holding in Bandhan Bank witnessed the highest jump to 35.2 per cent as of December 2020 from 13.1 per cent in March 2020. The spike in FPI holding, however, is on account of promoter stake dilution.

Stake dilution by promoters

To be compliant with RBI's licensing condition on promoter holding, the bank's promoter company Bandhan Financial Holdings diluted 20.95 per cent or 33.74 crore equity shares in August 2020.

Consequently, the promoter holding in Bandhan Bank came down to 40 per cent from 60.95 per cent in March 2020 while FPI holding in the bank grew to 32.2 per cent at the end of September quarter and 35.2 per cent at the end of third quarter.

Morgan Stanley Asia Singapore, Societe Generale, Caladium Investment PTE are among the foreign investors who picked up stakes in Bandhan bank’s bulk deal in August.

While foreign investors have increased their stake in almost all private lenders, YES Bank and RBL Bank witnessed a substantial increase in FPI holding among the pack. From mere 1.9 per cent stake in March 2020, FPI stake in Yes Bank stood at 15 per cent as of December 2020. While FPI holding in RBL Bank rose by 10 per cent to 35.2 per cent during this period.

Kotak Mahindra Bank and Axis Bank also saw FPI holding going up by more than 5 per cent in April to December period. The increase in foreign investor holding comes after depositories (NSDL and CDSL) raised the FPI limits for listed stocks to their respective sectoral caps in April 2020.

FPIs made a record investment of ₹2.18-lakh crore in Indian equities between April and December 2020. Of which, ₹66,327 crore or over 30 per cent of the inflow went to banks and other financial services which include financial institutions, housing finance companies (HFCs), NBFCs among others.

Moderate NPAs

Strong growth prospects, lower-than-expected NPAs and decent earnings in the first three quarters seem to have raised FPI interest in the banking and financial services sector.

In its sectoral report on Banks, Emkay Global Financial Services said that better-than-expected asset-quality experience and growth/earnings outlook could lend more fuel to the banking rally.

“In our view, recent bank stock rally was fueled by an anticipated ‘soft asset-quality landing’ after a big scare in the beginning, coupled with FII buying,” Emkay Global said, adding, “Valuations are still below pre-Covid-19 levels and could inch up further with improving growth/earnings outlook.”

Federal Bank and City Union Bank are some of the private banks that witnessed reduction in FPI exposure while the public sector banks including the State Bank of India did not see any growth in FPI holding during March to December quarters.

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