Policy support lifts foreign inflows into Indian banks to 14-month high

Policy support has helped foreign investors increase inflows into India’s banking stocks to a 14-month high, reversing a selloff earlier this year. During the second half of June, foreign portfolio investors bought 146.34 billion rupees ($1.54 billion) of banking shares, according to National Securities Depository data released Tuesday. Overall equity flows turned back to net buying at 141.09 billion rupees after four months of selling. Reuters links the turnaround to policy measures, lower valuations, and expectations of steadier earnings. The Reserve Bank of India extended a subsidised forex swap facility for lenders’ overseas borrowings and allowed banks to lend to non-residents against foreign-currency deposits. The government also scrapped capital gains tax for FPIs and removed a 20% tax on interest income, effective April 1, 2026. Analysts at Citi said the swap could narrow loan-to-deposit gaps and improve margins, while banks gained 6.1% in June.