Why Are Bank Stocks Falling Today? HDFC, ICICI, Axis, IDFC First, Kotak, BoB, PNB, Others Crash 3%

Bank Stocks Today: HDFC Bank, ICICI Bank, Axis Bank, IDFC First, Kotak Mahindra Bank, Bank of Baroda, Punjab National Bank, and several other names in the PSU and private bank category crashed during Monday, March 30, intraday trade. The sharp fall in bank stocks today came after the Reserve Bank of India directed banks to limit their net open positions on the rupee in the foreign exchange market.

The RBI's move has come amid consistent poor performance of the Indian Rupee against the US Dollar over the past few weeks. The domestic currency hit to its lowest levels last week amid concerns of surge in current account deficit due to crude oil prices rally amid West Asia crisis.

Bank Stocks Crash

Nifty PSU Bank was down close to 1.89% on Monday, whereas Nifty Bank was also down close to 2.04% in the first thirty minutes of the Indian stock market opening on Monday. IndusInd Bank, IDFC First Bank, Axis Bank, Kotak Bank, AU Bank, Bank of Baroda, Yes Bank, Federal Bank were among the top Nifty Bank losers witnessing a fall of close to 2% in the intraday trade.

In the Nifty PSU Bank stocks, Union Bank of India, Maharashtra Bank, Canara Bank, Central Bank of India, UCO Bank, PSB, State Bank of India, etc were trading more than 1.5% lower.

Why Are Bank Stocks Falling Today?

The sharp decline in bank sector stocks came after the RBI mandated all the banks to cap their net open rupee positions in the foreign exchange market at $100 million by the end of each business day. Generally, banks are allowed to have net open positions of up to 25% of their respective tier-1 capital. However, there is no upper limit on gross positions.

As of now, banks generally hold large open positions in the foreign market with most of it matched by open positions in the offshore market. The RBI has retained the authority to impose hard caps to ​manage exchange rate volatility.

Rupee Opens Stronger After RBI Move

While bank stocks today struggled in the Indian stock market, the Rupee opened higher against the US Dollar after the RBI move. The Indian Rupee opened at 93.9 against US Dollar on Monday, which is stronger than Friday's close of 94.81.

The recovery in the Indian Rupee on Monday came after the Rupee hit a string of record lows amid worries of a spillover effect due to the Iran-US war in West Asia. As per a Reuters report, the domestic currency has declined nearly 4% since the beginning of the Iran-US war on February 28.