Description

NSE revises criteria for Nifty Bank and Nifty Financial Services indices to comply with SEBI F&O requirements, and adds Union Bank of India and Yes Bank to Nifty Bank index effective December 31, 2025.

Summary

NSE Indices Limited has announced significant revisions to the methodology of Nifty Bank and Nifty Financial Services indices to comply with SEBI’s enhanced eligibility criteria for F&O traded indices (SEBI circular dated May 29, 2025). The changes include stricter weight capping rules, circuit filter requirements for non-F&O stocks, and expansion of Nifty Bank index from 12 to 14 stocks. Union Bank of India and Yes Bank Ltd. will be added to the Nifty Bank index effective close of December 30, 2025.

Key Points

  • Nifty Bank index size increased from maximum 12 stocks to 14 stocks
  • Union Bank of India (UNIONBANK) and Yes Bank Ltd. (YESBANK) added to Nifty Bank index
  • Effective date: December 31, 2025 (close of December 30, 2025)
  • New weight capping for Nifty Financial Services: Top 3 stocks capped at 19%, 14%, 10% respectively
  • Non-F&O stocks in Nifty Financial Services individually capped at 4.5%, cumulative cap at 10%
  • New weight capping for Nifty Bank: Top 3 stocks capped at 19%, 14%, 10% respectively
  • Non-F&O stocks in Nifty Bank individually capped at 4.5%, cumulative cap at 10%
  • Circuit filter criteria introduced for non-F&O stock eligibility in Nifty Bank
  • Changes comply with SEBI circular SEBI/HO/MRD/TPD-1/P/CIR/2025/79 dated May 29, 2025

Regulatory Changes

Nifty Bank Index Methodology Revisions:

  1. Number of Constituents: Increased from maximum 12 to 14 stocks

  2. Selection Criteria - F&O:

    • Step 1: Select top 14 stocks based on 6-month average free-float market capitalization from stocks available in NSE F&O segment
    • Step 2: If fewer than 14 stocks qualify in Step 1, deficit filled from remaining eligible universe based on 6-month average free-float market cap

  3. Circuit Filter Criteria: Non-F&O stocks eligible for inclusion only if total instances of hitting upper/lower circuit during past 6 months is less than 20% of total trading days (prospective basis)

  4. Weight Capping:

    • Top 3 stocks: Capped at 19%, 14%, 10% respectively
    • Other stocks: Individual weights lower than higher-weighted constituents
    • Non-F&O stocks: Individually capped at 4.5%, cumulative cap at 10%

Nifty Financial Services Index Methodology Revisions:

  1. Weight Capping:
    • Top 3 stocks: Capped at 19%, 14%, 10% respectively
    • Other stocks: Individual weights lower than higher-weighted constituents
    • Non-F&O stocks: Individually capped at 4.5%, cumulative cap at 10%

Previous Methodology (Both Indices):

  • Single stock cap: 33%
  • Top 3 stocks cumulative cap: 62%

Compliance Requirements

  • Members and market participants should note the revised index methodologies
  • Portfolio rebalancing required for index-tracking funds and passive investment products
  • Derivative strategies based on these indices need adjustment for new composition
  • Risk management systems should be updated to reflect new weight caps
  • Trading systems must account for new index constituents effective December 31, 2025

Important Dates

  • Circular Date: December 02, 2025
  • Press Release Date: December 01, 2025
  • Effective Date for Index Changes: December 31, 2025 (close of December 30, 2025)
  • SEBI Original Circular Reference: May 29, 2025 (SEBI/HO/MRD/TPD-1/P/CIR/2025/79)

Impact Assessment

Market Impact:

  • High impact on passive funds and ETFs tracking Nifty Bank and Nifty Financial Services indices requiring rebalancing
  • Trading volumes expected to increase in UNIONBANK and YESBANK ahead of inclusion date
  • Potential short-term volatility in both incoming stocks and existing constituents
  • Derivative positions in index futures and options will be affected by composition changes

Operational Impact:

  • Index fund managers must execute rebalancing trades before December 31, 2025
  • Market makers and arbitrageurs will adjust strategies for new index weights
  • Stricter weight caps enhance diversification and reduce concentration risk
  • Circuit filter requirement improves quality of non-F&O constituents in indices

Sectoral Impact:

  • Banking sector representation in Nifty Bank broadened with two additional stocks
  • Enhanced compliance with SEBI’s risk monitoring framework for derivative indices
  • Improved index governance aligning with regulatory expectations for systemically important indices

Impact Justification

Major structural changes to two key benchmark indices affecting trading strategies, derivative positions, and portfolio allocations. Addition of two banks to Nifty Bank index will impact passive funds and index-linked products.