Bank stocks gained as much as 5% on Tuesday after the raft of measures introduced by RBI to help hedge foreign currency borrowings stoked investor optimism and led to traders covering some of their bearish bets. Bank Nifty rose 2.1% to 55,194.50; and closed above 55,000 levels after two weeks while benchmark Nifty moved 0.5% higher on Tuesday. All 14 constituents of Bank Nifty moved higher on Tuesday, with Bank of Baroda jumping 5.5% while Canara Bank climbed 4.5%. Punjab National Bank and Federal Bank advanced around 3.5%, making banking gauges the best-performing sectoral indices on the NSE. The strength in banking shares also helped broader markets, with the Sensex up 395 points at 73,809 and the Nifty gaining 119 points to trade above 23,200. Investor wealth increased by ₹4.28 lakh crore during the session, reflecting the broad-based nature of the banking sector rally.
The Reserve Bank of India has introduced a specialized Standard Operating Procedure (SOP) for Foreign Currency Non-Resident (FCNR(B)) deposits and External Commercial Borrowings (ECBs). As part of this comprehensive move, the RBI has expanded the scope of its ECB scheme, allowing not just Public Sector Undertakings (PSUs) but all banks to raise foreign currency borrowings. Under the facility, authorised dealer banks can access a concessional swap window for fresh and renewed FCNR(B) deposits with maturities of three to five years until September 30. To incentivize these inflows, the central bank has introduced a strategic swap mechanism, effectively offering a subsidy of 1.5%, thereby covering nearly half of the total hedging costs for participants. The RBI has also provided crucial clarity regarding the FCNR(B) scheme, explicitly permitting banks to extend loans against these deposits. FCNR(B) deposits will also be exempt from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements, facilitating a "leverage effect," enabling non-resident depositors to make substantial investments using minimal own-funds. Under this structure, market dealers estimate that savvy depositors could potentially yield returns in the range of 12% to 15% on such deposits, significantly outperforming traditional fixed-income avenues. Brokerage Jefferies said the terms are supportive for lenders and could attract substantial foreign capital inflows, estimating total inflows from the measures could reach $50-70 billion, compared with about $34 billion during the 2013 programme. ICICI Securities noted that the measure should improve the liability profile of banks by increasing the share of stable medium-term foreign currency deposits while reducing reliance on domestic deposit mobilisation. Jefferies noted that banks would not bear hedging costs on FCNR(B) deposits under the scheme, unlike during a similar programme in 2013, when hedging costs were around 3.5%.
Bank Nifty has broken out of its 1,500-point trading range between 53,000 on the downside and 54,500 on the upside, closing above the crucial 55,000 mark on Tuesday. The index surged over 1,100 points or more than 2%, marking its biggest single-day advance since May 25. Despite outperforming for the better part of last week, the Nifty Bank found itself stuck in this range until Tuesday's breakout. Vatsal Bhuva of LKP Securities has observed the Nifty Bank breaking out from a contracting wedge pattern on the hourly chart and having reclaimed and sustained above the 20 and 50-Day Simple Moving Averages on the daily charts, indicating an improvement in price structure. The breakout, coupled with improving momentum indicators, suggests a positive bias from current levels. Support is placed at 54,500, followed by 54,300, while resistance is seen at 55,500, which coincides with the recent swing high. A decisive move above 55,500 could extend the rally towards the 56,200 zone, according to market analysts. The high-volume breakout past 55,100 and decisive price action, shifts the market regime from "sell on rallies" to "buy on dips," establishing 55,000 as a strong psychological support base-forming a high-conviction bullish view, as noted by Nishchal Jain, Quant Researcher at Share. Market by Phone Pe.
Public sector banks led the advance with Bank of Maharashtra, Bank of Baroda, Bank of India, Punjab & Sind Bank and Canara Bank among the top gainers. State Bank of India stock climbed nearly 2% and featured among the top gainers on the Nifty 50. Private lenders also participated in the rally with RBL Bank, City Union Bank, Federal Bank, IDFC First Bank and IndusInd Bank posting strong gains. All constituents of the Bank Nifty traded in positive territory, with IDFC First Bank emerging as the top gainer, climbing more than 3.5%. On Tuesday, June 9, the Nifty Bank is now trading with gains of nearly 650 points, approaching the crucial resistance zone of 54,800.
Market breadth was firmly positive, with 2,787 stocks advancing against 1,420 declining, translating into an advance-decline ratio of 1.96, indicating broad-based investor confidence in the banking sector. Rate sensitive shares traded mixed on Friday following the Reserve Bank of India's decision to maintain the repo rate at 5.25% during its Monetary Policy Committee meeting held between June 3-5. Realty and financial services stocks also advanced, while information technology and media shares underperformed. The Nifty Financial Services Index also gained 1.3% to hit an intraday high of 25,117.75, with MCX and ICICI Lombard leading the gains with advances of around 3% each. Real estate stocks delivered the strongest performance among rate-sensitive sectors, with Nifty Realty leading the rally with gains of nearly 2%, with Prestige Estates rallying more than 3.5% to emerge as the top gainer, while Lodha and Phoenix Mills gained over 2.5% each. The Nifty Bank has gained in five out of the last six trading sessions and has been a key factor in ensuring that the Nifty has managed to hold on to support levels lower down.
The sudden fundamental clarity triggered massive technical short covering, catching derivative traders by surprise and sparking a rapid short squeeze since the Put-Call Ratio (PCR) had dropped into an oversold zone below 0.80 ahead of the news, as noted by Nishchal Jain, Quant Researcher at Share. Market by Phone Pe. The measures by RBI are likely to drive a healthy deposit base for banks and lead to cheaper cost of funds since the hedging cost on FCNRB is borne by the Central Bank while the hedging costs on ECB's is subsidised, said Dharmesh Kant, head of research at Cholamandalam Securities. This policy allows Indian banks to access low-cost global capital and alleviate domestic deposit crunches without bearing currency risk, according to analysts. Last week, the RBI announced measures to boost foreign currency inflows and to support the rupee, offering a concessional dollar-rupee swap facility to absorb the entire forex hedging costs for three-to-five-year Foreign Currency Non-Resident (FCNR[B]) deposits until October 16, 2026.
