The Bank Nifty, meanwhile, retreated 3.8% to 50,275.35 – the lowest closing since April 9, 2025 – after the central bank set a $100 million end-of-day net position threshold for lenders. The newly-introduced curbs take effect from April 10.
Union Bank plunged 6.6% while Canara Bank and Bank of Baroda dropped 5.2% and 5.1%, respectively. IDFC First and IndusInd Bank shed 4.8% each.
“Banks will need to unwind or hedge their existing forex positions, which could lead to short-term volatility and mark-to-market fluctuations,” said Mayank Jain, market analyst, Share.Market (PhonePe Wealth).
The forex positions contributed to additional trading income and the move effectively restricts banks from taking large speculative or arbitrage positions in the rupee-dollar market, said analysts.
AgenciesAnalysts say lenders with higher dependence on trading income may continue to face pressure
With tighter regulations, investors are now factoring in the possibility of lower near-term profits, which has led to a decline in banking stocks, he said.
Jefferies said the since forex derivative market is dominated by larger banks such as SBI, ICICI, HDFC, Axis, and leading foreign banks operating in India, they may need to unwind positions. “While this may support INR, unwinding of positions (by 10Apr) may lead to MTM losses in 4Q as positions may be large at $30-40 billion with large banks & select foreign banks leading,” said analysts at the brokerage.
The brokerage said RBI may consider some leniency by tightening the norms on new contracts and let existing contracts continue as per previous norms. “It may also consider extending the time limit from 10-April to a further date, the smoother the forex movement & MTM impact on banks,” said the brokerage in a note.
Analysts said stocks with higher dependence on trading income may continue to face pressure, while large-cap banks with stronger retail and corporate lending book could see relatively better support. “For smaller or trading-oriented banks, this may result in increased pressure on valuations, whereas large, deposit-driven banks are likely to be relatively less impacted,” said Jain. “So, while the initial reaction may be sharp, further volatility, especially in select stocks, cannot be ruled out.”
Leading PSU banks and top private sector banks could offer attractive entry opportunities, particularly if valuations see further correction, he added. In March since the US-Iran war began, Bank Nifty plunged around 17% or 10,000 points while Nifty fell over 11% in the same period. The yields on 10-year government securities hardened to around 7%, further weighing on the sector, and banking stocks could remain volatile in near-term due to ongoing geopolitical uncertainties, said Vishal Narnolia, AVP — Research at ICICI Direct. “With the Bank Nifty already down about 15-16% this month, investors should avoid staying on the sidelines,” he said. “Investors can gradually accumulate positions in tranches on further declines.”