Banking stocks declined on Monday after the Reserve Bank of India’s (RBI) latest measures to support the falling rupee against the US dollar. The Bank Nifty index dropped over 2% in early trade, with all its constituents trading with heavy losses.
Axis Bank, IndusInd Bank, Kotak Mahindra Bank, IDFC First Bank and Yes Bank were the top losers on the index, falling over 2-3%.
The RBI on Friday directed banks to cap their net open rupee (NOP-INR) positions in the foreign exchange market at $100 million at the end of each business day. Banks have been asked to comply with this directive at the earliest, but no later than April 10, 2026.
“…it has now been decided that Authorised Dealers shall ensure that their NOP-INR positions in the onshore deliverable market shall be maintained within US$ 100 million at the end of each business day. Authorised Dealers shall ensure compliance with the above at the earliest but no later than April 10, 2026,” RBI said in a circular on March 27.
This tighter cap applies specifically to the onshore market. Earlier, banks were allowed to offset positions across the onshore market, non-deliverable forwards (NDF), and currency futures, with overall limits of up to 25% of their capital.
With the new cap in place, banks will begin to adjust their positions and likely to sell dollars in the market, which can temporarily support the rupee.
The move is expected to force the unwinding of arbitrage positions estimated at $10–18 billion, according to analysts.
“Banks will likely have to sell dollars in the onshore market and buy in the NDF market. This could widen spreads and potentially turn earlier arbitrage gains into losses,” said brokerage firm Systematix.
The RBI’s intervention to curb NDF arbitrage trade by putting a daily cap on onshore open trade reflects mounting pressure on the rupee, which is threatening to breach 95 to a dollar.
Impact on Banks
Industry estimates of aggregate excess positions range from $10–18 billion (arbitrage bets) to ~$40 billion total outstanding bets.
According to Systematix, many banks are estimated to be long USD (short INR) in proprietary/arbitrage books.
“Forced selling of dollars/buying of rupees could crystallise losses. The bank-wise open position details are not disclosed hence it is difficult to assess a bank-wise impact, but banks that operate with a biggest treasury and FX desks are State Bank of India, HDFC Bank, ICICI Bank and Axis Bank,” said the brokerage firm.
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