Summary:
Nifty Bank rose nearly 1% after the RBI reported $136.38 billion in foreign currency inflows through its special mobilisation measures. Strong inflows improved banking-system liquidity, supported the rupee and lifted major lenders including ICICI Bank, Axis Bank, HDFC Bank and SBI. However, excess liquidity could increase competition for borrowers and put pressure on lending yields and margins.
Banking stocks rallied sharply in early trade on September 3 after the Reserve Bank of India’s special foreign currency mobilisation measures attracted a significantly higher-than-expected $136.38 billion in foreign currency inflows. The strong inflows improved banking-system liquidity, strengthened India’s external buffers and supported sentiment across the financial sector.
The Nifty Bank index rose 0.91% to 57,694.95 around 9:40 am. The rally was broad-based, with the Nifty Private Bank index gaining 1.17% and the Nifty PSU Bank index advancing 1.14%. All three banking indices featured among the top sectoral gainers.
Large private-sector lenders led the gains. ICICI Bank climbed 1.59% to ₹1,449.20, Axis Bank rose 1.55% to ₹1,273.30 and HDFC Bank gained 1.28% to ₹709.80. SBI advanced 0.92% to ₹1,030.30, with all four stocks among the top 10 Nifty 50 gainers.
RBI Forex Facility Attracts $136.38 Billion
Provisional RBI data showed that FCNR(B) deposits accounted for the overwhelming majority of the inflows at $127.23 billion. Overseas foreign currency borrowings contributed $5.26 billion, while external commercial borrowings added another $3.89 billion. The figures remain provisional and are subject to final reporting, accounting and reconciliation.
The RBI introduced the special swap facility on June 8 to attract foreign currency inflows and strengthen India’s external position amid capital outflows, rupee weakness and elevated crude oil prices. By August 21, banks had mobilised $65.4 billion through FCNR(B) deposits, while total inflows through the three routes had reached around $73 billion.
Why Banking Stocks Surged
The massive mobilisation has substantially increased liquidity in the banking system and strengthened the RBI’s foreign exchange firepower. Banking-system liquidity reached ₹6.65 lakh crore on August 31, the highest level since May 2022, while the weighted average call rate declined to 4.98%, well below the 5.25% repo rate.
The stronger liquidity backdrop improved investor sentiment towards banks and raised expectations of greater funding availability. However, the large inflows could also intensify competition for quality borrowers, potentially putting pressure on loan yields and margins in the near term.
The scale of mobilisation was also far higher than the RBI’s 2013 FCNR(B) swap scheme, when banks raised around $26 billion.
Rupee Strengthens, Market Sentiment Improves
The strong foreign currency inflows provided additional support to the rupee, which strengthened as much as 0.7% to around ₹94.27 against the US dollar, its strongest level in more than a month.
Broader market sentiment also improved after US President Donald Trump played down the possibility of a prolonged conflict with Iran. Asian equities advanced, while Brent crude paused its three-day rally and traded around $95.50 a barrel.
At 9:40 am, the Sensex was up 303 points, or 0.40%, at 76,873.51, while the Nifty 50 gained 96 points, or 0.40%, to 24,010.90. Market breadth remained strong, with 2,232 shares advancing against 914 declines. India VIX declined around 5% to 11.02%.
Other Sectoral Moves
The rally extended beyond banking stocks. Nifty Realty gained 1.51% and Nifty Metal rose 0.89%. In contrast, Nifty IT declined 1% and Nifty FMCG fell 0.46%.
The FCNR(B) mobilisation window closed on August 31, while the RBI’s swap facility for eligible FCNR(B) deposits already mobilised remains available until September 11. The facilities for ECBs and OFCBs will remain open until December 31, 2026.
