30 Mar , 2026 By : Debdeep Gupta
Bank Nifty declined more than 2 percent in Monday’s trade after the Reserve Bank of India (RBI) directed banks to cap their net open rupee positions in the foreign exchange market at $100 million by the end of each business day. The directive, issued late Friday, requires compliance by April 10.
All 14 constituents of the Bank Nifty index were trading in the red. The index had gained more than 4 percent over the previous two sessions but reversed course on Monday, falling over 2 percent.
AU Small Finance Bank was the top laggard, declining 2.5 percent to Rs 860.2 per share on the National Stock Exchange (NSE).
Federal Bank and Punjab National Bank fell 1.91 percent and 1.96 percent, respectively.
Heavyweight financials, banks, private banks and PSU lenders fell 2-2.5 percent.
The decline followed the RBI’s move to tighten limits on banks’ foreign exchange positions, which triggered selling of dollars in the onshore market as traders rushed to cut arbitrage positions.
Market participants said the move is expected to lead to unwinding of such positions, where banks profit from price differences between offshore non-deliverable forwards and onshore forward markets.
The unwinding is likely to push banks to sell dollars in the domestic market. Early signs of this were visible as the rupee strengthened in both spot and forward markets.
The one-month USD/INR forward was last quoted at 94.13, down from around 95.15 on Friday.
The curbs come at a time when the rupee has weakened more than 4 percent in March amid global volatility linked to the war in the West Asia.
Bankers have sought more time from the RBI, requesting a three-month window to comply, citing concerns that a rapid unwinding of positions could result in losses.
"Some participants are still expecting relaxation from the RBI. If those positions are also reduced, the USD/INR could fall further," a trader at a state-run bank said.
Banks often take positions in dollars to make profits from price differences across markets. The RBI has now put a strict limit on how big these positions can be. Because of this, banks must reduce or close many of their existing trades quickly.
To do that, they are selling dollars, which is strengthening the rupee. This sudden adjustment can cause losses for banks, especially if they exit trades at unfavourable prices. It also reduces speculation and risk-taking in the forex market going forward.
The RBI has also been intervening in the foreign exchange market to contain volatility in the rupee.
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