Bank shares extend falls on RBI uncertainty

Reuters Market Eye - Banking stocks slump on uncertainty about how long the Reserve Bank of India (RBI) will maintain cash-draining measures that have raised short-term interest rates and sent bond yields surging.

RBI Governor Duvvuri Subbarao on Tuesday spoke of unwinding measures to tighten cash conditions once the currency stabilises, but doubts remain about how quickly the central bank can do that.

Yes Bank , which is one of the most reliant banks on short-term funding, slumps 9.3 percent after earlier falling to lowest since July 30, 2012.

Yes Bank earlier raised deposit rates as well as the base rate. Although the action is likely to protect net interest margins, analysts remain worried that profitability will take a hit for the bank in a weakening economy.

Yes Bank has fallen about 32 percent this month, compared with a 14.5 percent fall in the NSE's banking index.

Other banks that rely on raising short-term funds have been hit hard by the RBI's measures to raise short-term interest rates in a bid to defend the rupee.

IndusInd Bank falls 3.3 percent while Kotak Mahindra Bank is down 3 percent.

Surging government bond yields are also sparking concerns about reduced valuation for lenders' debt holdings: ICICI Bank slides 3.1 percent ahead of its April-June earnings later in the day.

(Reporting by Abhishek Vishnoi)