Bank Nifty fell nearly 200 points on Monday, October 12, as RBI liquidity measures and rising bond yields hit bank stocks. The index dropped to 55,059.50 in morning trade. SBI, ICICI Bank, and Axis Bank got hit the hardest as investors worried about higher funding costs and potential treasury losses.
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Bank Nifty fell nearly 200 points on Monday, October 12, with SBI, ICICI Bank and Axis Bank among the leading losers, as the Reserve Bank of India's (RBI) latest liquidity-tightening measures and a sharp rise in government bond yields weighed on sentiment towards banking stocks.
The Nifty Bank index declined 197 points, or 0.36 percent, to 55,059.50 in morning trade, reversing early gains after opening at 55,350.15 and touching an intraday high of 55,416.45. The decline came even as the rupee appreciated nearly 1 percent against the US dollar following the central bank's weekend announcements.
The RBI announced plans to sell Rs 25,000 crore worth of government bonds on Tuesday, a move that would directly absorb liquidity from the banking system. It also raised the minimum daily maintenance requirement for banks' cash reserve ratio (CRR) to 99 percent from 90 percent, effective October 16, restricting banks' flexibility in managing their reserve balances.
The measures come alongside the RBI's efforts to support the rupee, including a special dollar window for three state-run oil-marketing companies. Foreign exchange operations could also indirectly drain rupee liquidity, adding to concerns over banking-system liquidity.
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Bond yields surge to three-year high
Indian government bonds fell sharply on Monday, pushing the benchmark 10-year yield to 7.3707 percent, its highest level in three years, from 7.2994 percent on Friday. The yield has risen for eight consecutive weeks, gaining 54 basis points over the period.
Higher bond yields translate into lower bond prices, potentially exposing banks to mark-to-market losses on parts of their government securities portfolios. Tighter liquidity conditions could also raise funding costs and weigh on treasury profitability.
SBI, ICICI Bank, Axis Bank among top losers
SBI shares fell 1.21 percent to Rs 947.50, while Punjab National Bank declined 1.16 percent to Rs 115.62. ICICI Bank slipped 0.87 percent to Rs 1,343.20, and Axis Bank lost 0.71 percent to Rs 1,250.20. Yes Bank, Canara Bank, Union Bank of India and Bank of Baroda also traded lower. Kotak Mahindra Bank declined 0.19 percent, while HDFC Bank was largely flat at Rs 707.30.
Among the few gainers, IDFC First Bank rose 0.48 percent, Federal Bank gained 0.23 percent and AU Small Finance Bank advanced 0.14 percent. At 10:20 am, the Sensex was down 202 points at 72,270, while the Nifty 50 slipped 22 points to 22,498. The broader market breadth remained positive, with 2,344 stocks advancing against 1,262 declines.