The Nifty Bank fell over 2% in Monday’s trade after the Reserve Bank of India tightened norms for banks’ foreign exchange exposure late last week.
The RBI has directed lenders to cap their net open rupee (NOP-INR) positions in the forex market at $100 million at the end of each business day, with compliance required by April 10, 2026.
All 14 constituents of the Bank Nifty traded in the red, reversing gains from the previous two sessions when the index had rallied more than 4%.
Among individual stocks, AU Small Finance Bank led the losses, slipping around 2.5% to Rs 860.2 on the NSE. Federal Bank and Punjab National Bank declined about 1.9% each.
RBI tightens forex exposure norms
In a circular issued on March 27, the RBI said authorised dealers must maintain their onshore deliverable
NOP-INR positions within the $100 million limit by the end of each trading day.
The move marks a tightening of earlier rules, under which banks could offset positions across onshore markets, non-deliverable forwards (NDF) and currency futures, with overall limits of up to 25% of capital.
Impact on rupee and arbitrage trades
With stricter caps in place, banks are expected to unwind positions, likely leading to dollar sales in the onshore market and providing near-term support to the rupee.
Analysts estimate that arbitrage positions worth $10–18 billion may need to be unwound. Brokerage firm Systematix noted that banks may have to sell dollars in the onshore market while buying in the NDF market, potentially widening spreads and eroding earlier arbitrage gains.
Pressure on banks’ treasury books
The RBI’s move is seen as an attempt to curb NDF arbitrage and stabilise the rupee, which is approaching the 95-per-dollar mark.
Industry estimates suggest excess positions could range from $10–18 billion in arbitrage bets to as much as $40 billion in total outstanding positions.
Banks with large treasury and forex operations—such as State Bank of India, HDFC Bank, ICICI Bank and Axis Bank—may see a more pronounced impact, though bank-wise exposure data is not publicly disclosed.
