Six PSU Banks Could See $921 Million MSCI Passive Inflows on Higher FII Limits

Indian public sector banks may attract significant foreign inflows if the foreign institutional investor (FII) limit on these lenders is raised. According to a recent report, six state-run banks—State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Union Bank, and Indian Bank—stand to gain more than $921 million in passive MSCI inflows if the cap on FII investments is increased from the current 20% to 26%.

Potential MSCI Inflows for PSU Banks

SBI is expected to emerge as the largest beneficiary, potentially receiving $466 million in passive flows, given that its FII holding is close to 10%. Indian Bank may also see fresh inclusion in MSCI indices, which could bring in around $177 million. Meanwhile, PNB and BOB are projected to gain about $76 million each, while Canara Bank and Union Bank may attract $62–64 million each, data from Nuvama Alternative & Quantitative Research indicated.

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Market experts noted that the move could significantly improve liquidity and global exposure for PSU banks shares, which have witnessed growing investor interest in recent years. Passive inflows are considered particularly impactful since they are driven by index adjustments and fund allocations rather than discretionary investments.

Timeline and Regulatory Uncertainty

However, the timeline for such a decision remains uncertain. Analysts pointed out that discussions around raising the FII limit for PSU banks have been ongoing for several years, with no clear outcome so far. While the proposal looks possible, the exact timing is difficult to predict. It could take a couple of quarters before any final approval, after which MSCI would reflect the higher headroom in its indices, said an expert.

He further explained that most PSU banks currently have FII holdings ranging between 4.5% and 11%, suggesting that the present 20% limit is not restrictive yet. Still, even a conservative hike to 26% could unlock meaningful inflows, creating opportunities for these banks in global indices.

Impact on Market and Investors

The report also highlighted that any such change would be closely monitored by international investors, as higher inclusion in MSCI indices often boosts both foreign visibility and trading volumes. With PSU banks already showing signs of financial recovery and improved balance sheets, additional foreign capital could strengthen their market position further.

Conclusion

While the potential MSCI inflows offer strong prospects for six major PSU banks, the final decision on raising FII limits remains dependent on regulatory approvals. If cleared, the move could unlock close to $1 billion in passive foreign investments, led by SBI and Indian Bank.