Banking stocks have snapped their 3-day winning streak amid profit booking by investors, marking a temporary pause in the sector's recent momentum. According to Moneycontrol, the profit booking comes after Bank Nifty had gained 5.8% since the Reserve Bank of India announced its measures on June 5, significantly outperforming the Nifty's 3.16% rise during the same period. All constituents of the banking index, barring Yes Bank and PNB, had advanced between 1% and 7% in the previous sessions, with the bulk of short covering happening in stock futures of major lenders including ICICI Bank, HDFC, State Bank of India, Kotak Mahindra and Federal. The current profit booking suggests investors are taking profits after the strong rally driven by RBI's FCNR(B) measures and improved credit growth.
The Reserve Bank of India has placed Mogaveera Co-operative Bank Ltd., Bombay, under Directions for six months effective from close of business on June 12, 2026. Under these restrictions, the bank cannot grant or renew any loans and advances, make investments, incur liabilities including borrowing funds, or accept fresh deposits without RBI's prior approval. Considering the bank's present liquidity position, the bank has been directed to permit withdrawal of a sum not exceeding ₹1 lakh from savings bank or current accounts per depositor, as specified in the RBI Directions dated June 11, 2026. The bank may incur expenditure for essential items such as salaries, rent, and electricity bills, while eligible depositors would be entitled to receive deposit insurance claim amount of their deposits up to a monetary ceiling of ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the DICGC Act, 1961.
The RBI's FCNR(B) deposit rate mechanism is driving long delta additions in banking stocks, according to JM Financial Services. Akshay Bhagwat, associate director - derivatives research at JM Financial Services, noted that "because this price rally was accompanied by a 3.53% increase in open interest, it confirms a long buildup, indicating that fresh buyers dominate the series moving into next week." The central bank's FCNR(B) measures are essentially aimed at helping banks raise more foreign currency deposits from NRIs at a lower cost. While flows from abroad are expected to support the weaker rupee, banks will be able to offer higher interest rates for these deposits with RBI absorbing hedging costs and easing regulatory requirements. Manish Bhandari, CEO and portfolio manager at Vallum Capital, expects the scheme to attract $35-40 billion of incremental inflows, against an existing FCNR deposit base of roughly $30 billion. Christy B Mathai from Quantum Mutual Fund noted that "the FCNR measures have improved sentiment around the sector by easing concerns over funding costs and net interest margins (NIMs)." He added that the exemption of incremental FCNR(B) deposits from CRR and SLR requirements would provide banks greater flexibility to deploy funds for lending.
The combined market capitalisation of banking stocks rose by ₹2.75 lakh crore to ₹53.9 lakh crore since June 8, reflecting the strong investor confidence in the sector. Shares of the top five banks by market capitalisation gained 4-8% during this period. HDFC Bank emerged as the top performer with sustained long additions and fresh bullish participation, trading at ₹746.85 with a market cap of ₹11,50,204 crore. ICICI Bank followed closely at 1.81%, reaching ₹1,293.30 with a market cap of ₹9,27,517 crore. SBI gained 1.64% to ₹1,003.25 with a market cap of ₹9,26,107 crore, while Axis Bank rose 2.96% to ₹1,314.50 with a market cap of ₹4,08,847 crore. Among PSU banks, Bank of Baroda was among the stronger performers at 2.67%, with IDBI Bank posting healthy gains of 4.26% to ₹74.93. Chandan Taparia from Motilal Oswal noted that "ICICI Bank, Federal Bank, SBI and Kotak Mahindra Bank saw the strongest unwinding, indicating bears exiting positions, while HDFC Bank stands out as the only major bank name showing sustained long additions."
Investor sentiment has been further supported by banking system credit growth rising to a two-year high of 17.65%, as reported by The Financial Express. Christy B Mathai from Quantum Mutual Fund highlighted that "the FCNR measures have revived hopes that banks will be able to raise deposits without adding pressure on funding costs, helping bridge the credit-deposit gap while supporting margins." Shridatta Bhandwaldar from Canara Robeco Asset Management noted that "the RBI's measures, along with easing geopolitical concerns, are expected to support liquidity in the banking system and keep bulk deposit rates under control." The sector's outlook had already started improving as credit growth accelerated over the past two quarters, while concerns over NIMs have largely eased and credit costs remain benign. Bhandwaldar added that foreign institutional investor selling had impacted private sector banks more than public sector lenders due to higher foreign ownership. However, given current valuations and the earnings outlook, he said he prefers private sector banks and expects the sector to perform well if the earnings recovery continues.
