Record earnings draw foreign funds to three Indian banks

Foreign institutional investors increased their holdings in just a handful of Indian banks during the June 2026 quarter, with Jammu & Kashmir Bank, South Indian Bank and DCB Bank emerging as the primary beneficiaries. The selective buying highlights a preference for lenders that have recently executed operational turnarounds or delivered consecutive quarters of record profits.

For market participants, this concentrated FII activity underscores a shift in offshore capital allocation within India's banking sector. Rather than chasing the broader market, foreign funds are targeting mid-cap and regional lenders where balance sheet clean-ups and digital investments are now translating into tangible earnings growth.

Balance sheet turnarounds attract capital

South Indian Bank saw the most notable increase, with FII ownership rising 1.2 percentage points to 25.4%. The stake hike followed a fiscal year in which the Kerala-based lender posted a record net profit of ₹14.55 billion, a 12% increase, while driving gross non-performing assets down from 3.2% to 1.43%.

Jammu & Kashmir Bank also drew foreign interest, with FII stakes edging up from 8.4% to 9.4%. The state-promoted lender has undergone a significant restructuring since posting losses in FY20, reorganizing its zones and entering co-lending arrangements, pushing its stock from roughly ₹13 in early 2020 to around ₹184 today.

DCB Bank hits profit milestones

DCB Bank recorded a smaller but steady FII stake increase, moving from 12.7% to 13.5%. The private sector lender backed this confidence with its highest-ever quarterly profit of ₹2.06 billion in Q4 FY26, while growing advances 18% and deposits 21% year-on-year.

Management attributed the performance to a deliberate strategy of increasing average loan ticket sizes and shifting toward direct sourcing. The bank also improved its asset quality, cutting its slippage ratio to 2.28% from 3.09%.

Lagging data limits utility

While rising FII ownership serves as a useful screening tool for institutional confidence, investors should treat the data with caution. Shareholding disclosures carry a lag, meaning the market has likely already priced in much of this buying activity.

Furthermore, FII flows remain subject to global headwinds like US interest rate movements and currency fluctuations. A thorough assessment of net interest margins, capital adequacy and long-term earnings trajectories remains necessary before acting on these ownership changes.