With the RBI taking steps to shore up the rupee against the US dollar, bank stocks dived for cover with the country's largest bank State Bank of India slipping to a fresh 52-week low in the morning trade today.

It was not only the PSU bank stocks that were bleeding but even some of the big private sector bank stocks lost heavily, apparently over fears that the RBI's steps to stem the relentless fall of the INR against the greenback would make funds availability tough.

In its statement late yesterday, the apex bank had said that the perception of the market of the “likely tapering of US Quantitative Easing” had set off outflows of portfolio investment, mainly from the debt segment because of which the INR had depreciated significantly in the last six weeks.

This had hit countries with large current account deficits like India “despite their relatively promising economic fundamentals”. The demand for foreign currency has increased vis-à-vis that of the INR “in part because of the improving domestic liquidity situation”, the RBI said.

Listing the steps to “restore stability to the foreign exchange market”, the RBI said that Marginal Standing Facility (MSF) rate is recalibrated with immediate effect to be 300 basis points above the policy repo rate under the Liquidity Adjustment Facility.

Consequently, the MSF rate will now be 10.25 per cent. Accordingly, the Bank Rate also stands adjusted to 10.25 per cent with immediate effect. The RBI said overall allocation of funds under the LAF would be restricted to 1 per cent of the Net Demand and Time Liabilities of the banking system, reckoned as Rs 75,000 crore for this purpose.

The allocation to individual banks will be made in proportion to their bids, subject to the overall ceiling. This change in LAF will come into effect from July 17.

It said that the RBI would conduct Open Market Sales of Government of India Securities of Rs 12,000 crore on July 18, the details of the securities included for the OMO sale auction will be announced separately tomorrow.

The apex bank said that it would continue to “closely monitor the markets, the liquidity situation and the macroeconomic developments and will take such other measures as may be necessary, consistent with the growth-inflation dynamics and macroeconomic stability.

The RBI decision, while leading to some appreciation of the INR against the greenback, has led to a hammering of bank stocks on fears that not only the liquidity might take a hit, the expected reduction in interest rates may not come anytime soon.

It was the SBI, the country's premier bank that had to bear the brunt of the impact with the stock falling by Rs 83.95 to Rs 1,828.35. The stock dipped below Rs 1,800 to a new yearly low of Rs 1,797.50 before making a mild recovery. The premier private sector banks were not spared either. ICICI Bank shed Rs 55.65 to trade at Rs 1,005.40, Axis Bank was down by Rs 53.85 to Rs 1,255.05 and YES Bank lost Rs 45.40 to Rs 454.95. HDFC Bank was able to limit the loss to some extent to Rs 18 to quote Rs 677.45.

All the 12 stocks constituting the CNX Bank Nifty were trading in the red with the Bank Nifty itself losing 495 points.

(This article was published on July 16, 2013)
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