Why efforts to strengthen rupee may squeeze Indian banks' earnings

Indian lenders can hardly afford another headwind as they absorb trading losses from the past year's drop in sovereign bonds and continue to battle one of the world's worst bad-loan ratios

The Indian central bank’s efforts to tighten the availability of rupees in the market and halt a slide in the currency may squeeze profitability at the nation’s lenders as it raises their funding costs, according to the local unit of Moody’s Investors Service.

The rupee, Asia’s worst-performing currency this year, touched a record low on Thursday with rising oil prices threatening to stoke inflation and worsen government finances. State-run banks probably sold dollars on behalf of the Reserve Bank of India to arrest these declines, local traders said. Creating a shortage of the local currency risks worsening liquidity in India’s banking