The National Stock Exchange (NSE) has announced significant revisions to the methodology of the Nifty Bank Index, representing one of the most critical structural changes to the benchmark in recent years.
On Monday, the NSE revealed updated weightage rules for the Nifty Bank and Nifty Financial Services indices, aligning them with the Securities and Exchange Board of India’s (SEBI) norms regarding weight concentration.
The Nifty Bank index will now feature a fixed number of 14 constituents, an increase from the previous maximum of 12. These changes are part of NSE Indices’ revised methodology and recent regulatory standards. Under the new framework, constituent selection will primarily depend on the six-month average free-float market capitalization, with inclusion limited to stocks that qualify for trading within the NSE’s derivatives segment. If fewer than 14 stocks meet the eligibility criteria, additional stocks will be selected from the broader market based on free-float rankings.
A key adjustment includes the establishment of fixed weight caps for the top three constituents, set at 19% for the largest, 14% for the second-largest, and 10% for the third-largest. This change limits the total weight of the top three banks to 43%, aiming to enhance diversification and mitigate concentration risk, according to a report from Nuvama Alternative & Quantitative Research. The weights of all other constituents will be tiered below these top three in descending order.
Non-financial stocks will be constrained to a 4.5% individual cap and a 10% cumulative limit. The implementation of the revised index will occur across four phases: December 2025, January 2026, February 2026, and March 2026, with the first tranche taking effect on December 31, following an adjustment on December 30.
This restructuring will introduce Yes Bank and Union Bank of India as new constituents, both of which will be added simultaneously. A gradual reweighting of the top three banks will be executed over the scheduled quarterly reviews.
All constituents, including the newly added stocks, are expected to experience minor weight fluctuations throughout the four tranches, as outlined in Nuvama’s estimates.
The multi-phase recalibration is projected to lead to steady adjustments in stock weights. Notably, prominent banks such as HDFC Bank and ICICI Bank are anticipated to see substantial weight reductions over the transition period, while several mid-tier institutions—including Bank of Baroda, Punjab National Bank, Canara Bank, Federal Bank, and AU Small Finance Bank—are expected to gain weight. The inclusion of Yes Bank and Union Bank of India will also result in incremental increases as the cap-based normalization unfolds.
Nuvama’s flow analysis indicates significant cumulative outflows for the largest constituents, alongside considerable inflows for the newly added and rising mid-tier banks.
Published on December 2, 2025.
