AU Small Finance Bank, Union Bank, Canara Bank, IndusInd Bank, and Punjab National Bank each plunged 4%, while State Bank of India dropped 3.5%. Top private lenders Axis Bank, HDFC, ICICI, and Kotak Mahindra Bank fell 2-3% as investors digested the potential hit from the central bank’s toughest forex curbs in over a decade.
The selloff came even as the rupee jumped 1.4% to 93.53 against the dollar following the RBI’s late Wednesday crackdown, which barred banks from offering rupee non-deliverable forwards and banned the rebooking of cancelled forward contracts.
“RBI has further tightened rules on forex derivatives, requiring banks to close contracts in the open market by removing the leeway to sell to corporates and clients. This could lead to (1) sharper INR appreciation versus Monday’s flat close, and (2) higher losses for banks of Rs 4,000-5,000 crore, up from the earlier estimate of Rs 3,000-4,000 crore,” Jefferies analysts said.
The brokerage raised its loss estimate after the RBI plugged loopholes that banks had used to cushion the impact of restrictions imposed last Friday, when net open positions were capped at $100 million.
“While banks were expecting to minimise losses, tighter rules may push them back to original estimates or slightly higher, depending on spreads,” Jefferies added.
The market had a dollar-rupee open position of about $40 billion, and a 1% move in the spread between offshore and onshore forward premiums could translate into roughly Rs 4,000 crore in losses for the banking sector.Banks were required to unwind positions exceeding $100 million, long dollar onshore and short offshore, by April 10. Earlier, they had partially transferred positions to corporates, hedge funds and other clients to limit losses to Rs 30-40 billion.
However, the RBI’s stricter rules have shut that route. “The RBI was likely not comfortable with the limited INR appreciation,” Jefferies noted, pointing out that despite opening 1% higher, the rupee ended flat at Rs 95/$ on Monday amid steady importer demand.
The estimated Rs 40-50 billion hit, less than 1% of the sector’s FY25 pre-tax profit of Rs 5.5 trillion, is expected to be unevenly distributed, with foreign banks bearing about 45% of losses, private banks 40% and public sector banks 15%.
Some of the impact may be reflected in Q4 FY26 and Q1 FY27 earnings. “While losses are manageable, they could weigh on medium- to long-term trading activity in the rupee,” Jefferies said.