Bank stocks drop up to 4% after RBI intensifies crackdown on rupee speculation; AU SFB, BoB lead losses
April 02, 2026
The tighter rules are a negative for banks as it may lead to higher losses, said analysts at Jefferies
Bank stocks dropped on April 2 after the Reserve Bank of India intensified its crackdown on speculative activity in the rupee by targeting corporate arbitrage, requiring lenders to close contracts in open markets by removing leeway to sell to corporates.
The Nifty Bank index slid 2.8%, private lenders and state-owned banks lost 2.1% and 3.2%, compared to a 2% decline in the benchmark Nifty 50 .
The tighter rules are a negative for banks as it may lead to higher losses, said Prakhar Sharma and Vinayak Agarwal, analysts at Jefferies.
At 10:40 am on April 2, AU Small Finance Bank, Bank of Baroda and Federal Bank shares were trading 4%, 3.9% and 3.8% lower, respectively.
Among other losers were Union Bank of India, IndusInd Bank, Canara Bank and State Bank of India, which were trading 3.5%-3.8% lower.
The central bank has stepped up measures to curb arbitrage flows and speculative bets that have been pressuring the currency, while it deals with worries over risks to India's current account amid existing weakness on the capital account side.
On Wednesday, the RBI stepped up its efforts to support the currency by barring banks from offering rupee non-deliverable forwards to resident and non-resident clients and preventing companies from rebooking cancelled forward contracts.
The rupee rose to 93.53 against the U.S. dollar in early trades, up 1.4% from its closing level on Monday.
The new rules take effect immediately and come just days after the RBI took its boldest step in more than a decade by capping lenders’ daily onshore currency positions at $100 million. The directive sent banks scrambling to unwind at least $30 billion of arbitrage trades. People familiar with the matter estimate that between $4 billion and $10 billion has been unwound so far, reported Bloomberg.
The earlier curbs offered only brief support for the currency. The rupee initially jumped on Monday before reversing course and falling to a new low. It closed at 94.83 per dollar, with the gap between the day’s high and low the widest since 2013.
The RBI on Wednesday also instructed banks not to allow clients to rebook any FX derivative contracts — deliverable or non-deliverable — once they’ve been canceled. Banks were also told not to undertake any FX derivative contract with their related parties.
Worries over deepening conflict in the Middle East have sparked a surge in energy prices, with Brent crude oil futures climbing about 5% to $106 per barrel on Thursday.
The rise followed US Donald Trump's remarks that the U.S. would hit Iran "extremely hard" within weeks, adding that military goals were nearly achieved and that the conflict was close to ending.
At 11 am on April 2, the Nifty Financial Services index was trading 2.2% lower with Cholamandalam Finance, State Bank of India and Shriram Finance being among top losers.
The Nifty Bank index slid as much as 2.8% to 50,004.30 points - its lowest level since April 9, 2025 - with all constituents trading lower.
The index has fallen 4.3% this week following the Reserve Bank of India's curbs, underperforming the benchmark Nifty 50, which is down 2.6%.
Jefferies said banks were hoping to mitigate losses stemming from the initial measures by transferring or selling part of their positions to corporates, hedge funds and other clients.
The fresh curbs may bring the losses back to original estimates or a tad higher at Rs 4,000 crore-Rs 5,000 crore, the brokerage said.
The RBI's measures come as the rupee has hit a string of all-time lows on worries over spillovers from the Iran war. The currency fell 4.24% in March, its worst monthly drop in six years, before the latest curbs helped it rise 1.4% to 93.53 per U.S. dollar in early trade on Thursday.
Private lenders HDFC Bank and ICICI Bank dropped 1.4% each on Thursday, while state-run banks logged sharper losses. State Bank of India was down 2.9%, while Punjab National Bank, Canara Bank and Union Bank of India lost 3.4%, 3.6% and 3.9%, respectively.
Jefferies expects banks to book part of their losses in the January-March and April-June quarters, and said foreign lenders account for 45% of the currency derivatives market and related losses, while private banks have a 40% share.
With inputs from Reuters
The Nifty Bank index slid 2.8%, private lenders and state-owned banks lost 2.1% and 3.2%, compared to a 2% decline in the benchmark Nifty 50 .
The tighter rules are a negative for banks as it may lead to higher losses, said Prakhar Sharma and Vinayak Agarwal, analysts at Jefferies.
At 10:40 am on April 2, AU Small Finance Bank, Bank of Baroda and Federal Bank shares were trading 4%, 3.9% and 3.8% lower, respectively.
Among other losers were Union Bank of India, IndusInd Bank, Canara Bank and State Bank of India, which were trading 3.5%-3.8% lower.
The central bank has stepped up measures to curb arbitrage flows and speculative bets that have been pressuring the currency, while it deals with worries over risks to India's current account amid existing weakness on the capital account side.
On Wednesday, the RBI stepped up its efforts to support the currency by barring banks from offering rupee non-deliverable forwards to resident and non-resident clients and preventing companies from rebooking cancelled forward contracts.
The rupee rose to 93.53 against the U.S. dollar in early trades, up 1.4% from its closing level on Monday.
The new rules take effect immediately and come just days after the RBI took its boldest step in more than a decade by capping lenders’ daily onshore currency positions at $100 million. The directive sent banks scrambling to unwind at least $30 billion of arbitrage trades. People familiar with the matter estimate that between $4 billion and $10 billion has been unwound so far, reported Bloomberg.
The earlier curbs offered only brief support for the currency. The rupee initially jumped on Monday before reversing course and falling to a new low. It closed at 94.83 per dollar, with the gap between the day’s high and low the widest since 2013.
The RBI on Wednesday also instructed banks not to allow clients to rebook any FX derivative contracts — deliverable or non-deliverable — once they’ve been canceled. Banks were also told not to undertake any FX derivative contract with their related parties.
Worries over deepening conflict in the Middle East have sparked a surge in energy prices, with Brent crude oil futures climbing about 5% to $106 per barrel on Thursday.
The rise followed US Donald Trump's remarks that the U.S. would hit Iran "extremely hard" within weeks, adding that military goals were nearly achieved and that the conflict was close to ending.
At 11 am on April 2, the Nifty Financial Services index was trading 2.2% lower with Cholamandalam Finance, State Bank of India and Shriram Finance being among top losers.
The Nifty Bank index slid as much as 2.8% to 50,004.30 points - its lowest level since April 9, 2025 - with all constituents trading lower.
The index has fallen 4.3% this week following the Reserve Bank of India's curbs, underperforming the benchmark Nifty 50, which is down 2.6%.
Jefferies said banks were hoping to mitigate losses stemming from the initial measures by transferring or selling part of their positions to corporates, hedge funds and other clients.
The fresh curbs may bring the losses back to original estimates or a tad higher at Rs 4,000 crore-Rs 5,000 crore, the brokerage said.
The RBI's measures come as the rupee has hit a string of all-time lows on worries over spillovers from the Iran war. The currency fell 4.24% in March, its worst monthly drop in six years, before the latest curbs helped it rise 1.4% to 93.53 per U.S. dollar in early trade on Thursday.
Private lenders HDFC Bank and ICICI Bank dropped 1.4% each on Thursday, while state-run banks logged sharper losses. State Bank of India was down 2.9%, while Punjab National Bank, Canara Bank and Union Bank of India lost 3.4%, 3.6% and 3.9%, respectively.
Jefferies expects banks to book part of their losses in the January-March and April-June quarters, and said foreign lenders account for 45% of the currency derivatives market and related losses, while private banks have a 40% share.
With inputs from Reuters