Indian shares edged up on Monday with lenders being the biggest drag after the central bank unexpectedly ordered banks to deposit their extra cash with it, although overall sentiment was upbeat as Asian shares advanced.
The Reserve Bank of India on Saturday asked banks to maintain a temporary incremental cash reserve ratio (CRR) of 100% to absorb excess liquidity from the system after the government's move to withdraw larger banknotes sparked a surge in deposits.
The Nifty PSU Bank Index, an index of state-run lenders, fell as much as 4.43% to its lowest since Nov. 9 as the CRR move is likely to deprive banks of earning interest on funds parked with the RBI. The Nifty Bank index fell as much as 1.73%.
Meanwhile, the benchmark 10-year bond yield rose as much as 15 basis points on the news.
"It (CRR move by RBI) is a short-term measure... Sentiment would remain weak," said Gaurang Shah, vice president, Geojit BNP Paribas Financial Services.
The benchmark BSE Sensex was 0.14% higher at 26,352.47 after falling as much as 0.51% earlier in the session.
Lenders were among the biggest decliners with State Bank of India down 1.74%, while Bank of Baroda fell 2.47%.
However, oil retailers advanced after Brent crude futures fell as much as 2% in early Asian trade, following on from a 3.6% fall on Friday, as doubts arose over whether the Organization of the Petroleum Exporting Countries would reach a deal later this week.
Bharat Petroleum Corp Ltd rose 3.20%.