The robust fundamentals of the banking sector is reflected in the performance of the bank stocks with the Nifty Bank Index appreciating 24 per cent over a one-year period
The banking sector’s robust health, signified by healthy credit growth, improving asset quality, stable profitability and stake-buys by foreign banks and institutions in private sector banks, has prompted mutual funds to increase their weightage in the sector, leading to significant rise in their stakes in various banks over the last one year.
The banks in which MFs have increased their shareholding by more than 1 per cent between December 2024 and December 2025 include AU Small Finance Bank (SFB), Axis Bank, Bandhan Bank, Equitas SFB, Bank of Maharashtra, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank, Kotak Mahindra Bank, RBL Bank, South Indian Bank, State Bank of India and Ujjivan SFB, according to data sourced from primeinfobase.com.
“Overall, the banking system is doing very well with non-performing assets (NPAs) at multi-decade lows and improving credit growth. The RBI’s Financial Stability Report highlights revival in credit demand. Some sectors like MSMEs, retail and segments of the corporate sector are borrowing more, “ said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
“This impressive credit growth along with better asset quality is expected to result in impressive profit numbers, going forward. Tier-2 banks had reported better Q3 results and this trend is expected to continue,” he said.
Bank stocks sizzle
The robust fundamentals of the banking sector is reflected in the performance of the bank stocks with the Nifty Bank Index appreciating 24 per cent over a one-year period.
“Considering the sustained financial performance of Banks, their stock valuations are very attractive. MFs participated in the QIPs (qualified institutional placements) of some of the banks. Funds are also re-directing their investments from IT stocks to bank stocks,” said Mangesh Kulkarni, Head — Portfolio Management Services, Almondz Financial Services.
The substantial increase in MFs’ stake in Equitas SFB and Ujjivan SFB comes in the wake of AU SFB receiving the RBI’s in-principle approval in August 2025 to convert into a universal bank. MFs’ stake in AU SFB has gone up 5.5 percentage points/pp since December-end 2024 to 22.61 per cent as at December-end 2025.
MFs’ stake in Equitas SFB amd Ujjivan SFB rose 7.7 pp (to 45.20 per cent as at December-end 2025) and 19.99 pp (to 23.82 per cent), respectively.
The 22 pp jump in MFs’ stake (to 34.44 per cent) in RBL Bank comes in the backdrop of Emirates NBD Bank’s decision to acquire controlling stake in the former through a primary infusion of about $3 billion (₹ 26,850 crore).
MFs upped their stake in IDFC First Bank (up 6.37 pp to 10.93 per cent) and Federal Bank (up 2.25 pp to 37.78 per cent).
During the current financial year, the arms of Warburg Pincus and ADIA acquired about 9.45 per cent (for ₹4,876 crore) and 5 per cent stake (₹2,624 crore), respectively, in IDFC First Bank. Further, one of Blackstone’s funds has invested ₹6,196.5 crore in the warrants of Federal Bank, translating into a shareholding of 9.89 per cent.
Among public sector banks, MFs have preferred Bank of Maharashtra, upping their stake by 4.47 pp to 5.32 per cent. SBI is the only other PSU Bank in which MFs have increased their shareholding by more than 1 per cent (up 1.41 pp to 13.64 per cent).
Published on March 3, 2026