Bank Stocks Fall After RBI Tightens Forex Rules
Shares of major Indian banks fell sharply after the Reserve Bank of India introduced new rules in the currency market. Stocks of HDFC Bank, ICICI Bank, State Bank of India, Axis Bank and Kotak Mahindra Bank dropped by up to 4 percent during early trading.
The fall came after the RBI announced a cap on the amount of open positions banks can hold in the onshore currency market. As per the new rule, banks can hold a maximum of $100 million at the end of each trading day. This rule will come into effect from April 10.
The onshore currency market is where the Indian rupee is traded against foreign currencies within the country. Banks use this market for import-export payments, hedging risks, and managing currency differences between domestic and offshore markets.
Experts say the new rule will force banks to reduce their large positions in the dollar. This process, known as “unwinding,” may lead to selling of dollars in the market. As a result, the rupee may get short-term support.
However, this move has created pressure on banking stocks. Investors are worried that banks may face losses while closing their existing positions. Reports suggest that total positions worth $10 to $18 billion may need to be reduced soon.
Global firm Jefferies has estimated that banks could face losses between ₹3,000 crore and ₹4,000 crore due to this change. This has added to market concerns and increased volatility in banking stocks.
At the same time, the rupee showed some recovery. It rose from its record low and traded around 93.57 against the US dollar in early trade.
Banks have requested the RBI to give more time to adjust to the new rules. They say it may be difficult to reduce such large positions quickly.
Overall, the RBI’s step aims to control risky bets against the rupee, but it has caused short-term pressure on bank stocks.
