Banking Shares Surge As RBI Measures Boost Overseas Fund-Raising Prospects

Banking stocks led gains on Dalal Street on Tuesday after the Reserve Bank of India (RBI) released operational guidelines for its FCNR(B) deposit and external commercial borrowing (ECB) schemes, making overseas fund raising more attractive through a concessional forex swap facility.

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The Nifty Bank index rose 1.28% to 54,758 at 09:55 am, with all 14 constituents trading in positive territory. The rally helped benchmark indices recover after two consecutive sessions of losses.

The Nifty Private Bank index gained 1.31%, while the Nifty PSU Bank index advanced 1.04%.

Banking Stocks Lead Market Gains

Among the top gainers on the Nifty 50, ICICI Bank rose 1.5%, while Axis Bank gained 1.3%. Kotak Mahindra Bank also climbed more than 1%.

Broader buying interest was visible across banking counters. Yes Bank, Federal Bank and Bank of Baroda rose around 1.7% each. Canara Bank and Punjab National Bank gained over 1%, while State Bank of India advanced 0.7%.

The strength in banking shares supported the broader market. The Sensex was up 285 points at 73,809, while the Nifty gained 88 points to trade above 23,200. Market breadth remained strong, with advancing shares outnumbering declining shares by more than three to one.

RBI Announces Concessional Forex Swap Facility

The rally followed RBI’s operational guidelines issued after market hours on Monday for FCNR(B) deposits and ECBs.

Under the scheme, authorised dealer banks can access a concessional swap window for fresh and renewed FCNR(B) deposits with maturities ranging from three to five years until September 30. The central bank will also provide a swap facility for eligible overseas borrowings.
The measures are aimed at encouraging overseas fund raising by banks and public sector enterprises.

Jefferies Sees Scope for Higher Foreign Inflows

According to brokerage Jefferies, the terms of the facility are supportive for lenders and could attract significant foreign capital inflows.

The brokerage noted that banks will not bear hedging costs on FCNR(B) deposits under the current scheme. During a similar programme in 2013, hedging costs were around 3.5%.

Jefferies also highlighted that FCNR(B) deposits under the scheme will be exempt from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements.

For ECBs, the brokerage said banks and public sector enterprises will be able to raise overseas funds while benefiting from a concessional RBI swap facility that lowers effective hedging costs.

Jefferies estimates that the measures could generate inflows of $50 billion to $70 billion. This compares with around $34 billion mobilised under a similar programme introduced in 2013.

The RBI’s latest measures boosted sentiment across the banking sector, driving gains in both private and public sector lenders and helping the broader market trade higher during the session.