Why are foreign funds buying stakes in Indian banks like Federal Bank?

Foreign funds are investing due to attractive valuations, growth potential in the mid and small-sized banking sector, and supportive economic measures.

Which smaller South Indian banks are gaining investor attention?

The Karnataka Bank, City Union Bank, and The Karur Vysya Bank are attracting investor interest and trading near their 52-week highs.

How do the valuations of smaller banks compare to Kotak Mahindra Bank?

Smaller private banks trade at significantly lower price-to-earnings and price-to-book ratios compared to larger banks like Kotak Mahindra Bank.

Home / Business and Economy / Foreign Funds Spark Rally in Smaller Banks

Foreign Funds Spark Rally in Smaller Banks

28 Nov, 2025

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Summary

Foreign investors are significantly boosting stakes in mid and small-sized banks.
Blackstone and Warburg Pincus made substantial investments in Federal and IDFC First Bank.
Smaller South Indian banks trade at lower valuations despite near 52-week highs.

Foreign Funds Spark Rally in Smaller Banks

Investor attention on Dalal Street is increasingly focusing on mid and small-sized banks, spurred by significant foreign investments. Global giants like Blackstone have invested nearly ₹6,197 crore in Federal Bank, while Warburg Pincus injected approximately ₹4,876 crore into IDFC First Bank, as part of a larger capital infusion. This surge in interest is further amplified by recent GST cuts and RBI initiatives aimed at boosting lending.

Several South Indian banks, including The Karnataka Bank, City Union Bank, and The Karur Vysya Bank, are trading close to their 52-week highs. However, their valuations remain considerably lower than leading private banks like Kotak Mahindra Bank. This discrepancy presents an attractive opportunity for investors seeking growth at a more accessible price point. The banks are also benefiting from measures designed to stimulate lending across the financial system.