Mutual funds have increased their investments in private banks, with HDFC Bank experiencing its largest and fastest rise.

Private lenders have seen an increase in shareholding by mutual funds (MFs), reflecting strong growth potential in the sector. An analysis by Moneycontrol of data from the top eight banks reveals a notable rise from June 2023 to June 2024.

HDFC Bank, the largest private sector bank, experienced the most significant increase in MF shareholding, climbing from 17.6% to 24.83%, a rise of 723 basis points. Kotak Mahindra Bank followed, with MF shareholding growing from 9.5% to 16.52%, a gain of 702 basis points. IndusInd Bank saw a 5.93% increase, with MFs holding 19.91% of the bank's shares, an uplift of 593 basis points.

ICICI Bank was the only one to see a slight reduction in MF shareholding, down by 0.04% to 29.18% as of June 2024.

During this period, bank share prices also rose significantly. For example, Axis Bank's closing price on June 28 was Rs 1,266.46, up from Rs 987.54 on June 30, 2023. Similarly, Federal Bank’s shares increased to Rs 177.09 from Rs 126.5. Except for Kotak Mahindra Bank and HDFC Bank, shares of other banks performed well.

The Nifty Private Bank index also surged from 22,953.30 points to 26,144.22 points during this time. Despite mixed results in the latest quarterly figures, private banks remain strong, with significant MF investments. IIFL Securities reported that MFs purchased over Rs 42,000 crore worth of HDFC Bank shares in the first half of 2024, a substantial increase compared to previous years.

For Q1FY25, private banks reported a 23% year-on-year increase in net profit, though net interest margins faced some pressure. Seasonal challenges, such as heatwaves and stress on the agricultural portfolio, were noted, but banks are optimistic about continued growth and positive trends moving forward.