IDFC First, Federal, BOB, PNB, Canara Bank gain up to 4%; here's why

At 11:26 AM on the Tuesday, the Nifty Bank and Nifty Private Bank index (up 1 per cent each) and Nifty PSU Bank index up 2 per cent outperformed the Nifty 50, which was down 0.03 per cent.

Banking stocks today

 

Banking shares, private as well as public sector, were in focus, gaining up to 4 per cent on the National Stock Exchange (NSE) in Tuesday’s intra-day trade in an otherwise range-bound market.

 

IDFC First Bank, Bank of Baroda, Federal Bank, Punjab National Bank, Canara Bank and Union Bank of India from the Nifty Bank index rallied in the range of 2 per cent to 4 per cent. State Bank of India (SBI), Axis Bank and ICICI Bank were up 1 per cent each.

 

Bank of India, RBL Bank, Federal Bank, Indian Bank, Karnataka Bank, Jammu & Kashmir Bank and South Indian Bank were up between 2 per cent and 5 per cent.

 

 

At 11:26 AM on Tuesday, the Nifty Bank and Nifty Private Bank index (were up 1 per cent each) and Nifty PSU Bank index was up 2 per cent, outperforming the Nifty 50, which was down 0.03 per cent.

 

Why are banking shares in focus?

 

The Reserve Bank of India (RBI) on Monday allowed banks to exclude positions arising from its newly announced foreign-currency swap facilities for foreign currency non-resident (bank) deposits, external commercial borrowings (ECBs), and overseas foreign-currency borrowings from the calculation of their net overnight open position in rupee (NOP-INR) limits.

 

The RBI operationalised its concessional US dollar rupee swap facility, allowing banks to hedge eligible ECBs of public sector undertakings and overseas foreign currency borrowings at a fixed cost of 1.5 per cent per annum for maturities of up to five years. The facility, available for borrowings drawn till December 31, 2026, significantly lowers hedging costs from the prevailing 3.5–4.0 per cent, making overseas fundraising more attractive and predictable. It also covers undrawn portions of existing eligible ECBs but excludes refinancing transactions. 

 

The measure is expected to revive offshore borrowing and support foreign capital inflows after ECB issuances moderated to around ₹4.04 trillion ($43 billion) in FY26 from ₹5.73 trillion ($61 billion) in FY25, while easing funding costs for PSUs and strengthening external financing avenues.

 

According to ICICI Securities, the concessional swap facility materially lowers the effective cost of ECB borrowings for PSUs, likely accelerating offshore fundraising and reducing dependence on domestic bank funding. This should support foreign currency inflows while freeing up domestic banking system liquidity. 

Meanwhile, the RBI issued operational guidelines for its FCNR(B) swap facility, stipulating a one-year lock-in for deposits and prohibiting cancellation of swap transactions. The facility, available until October 16, 2026, covers fresh 3–5 year FCNR(B) deposits mobilised between June 8 and September 30, 2026, including eligible renewals. 

 

Under the scheme, banks receive an at-par dollar-rupee swap from the RBI, translating into a hedging cost concession of around 280–300 bps versus prevailing market rates, while deposits remain exempt from CRR and SLR requirements. Bankers expect the scheme to attract $35–40 billion (≈₹3.29–3.76 trillion) of inflows, compared with around $26 billion (≈₹2.44 trillion) mobilised under a similar facility in 2016, thereby supporting foreign currency inflows and strengthening banks’ overseas liability franchise.

 

The scheme should improve the liability profile of banks by increasing the share of stable medium-term foreign currency deposits while reducing reliance on domestic deposit mobilisation. It also provides an additional avenue to augment system liquidity and strengthen the external sector without exerting pressure on domestic interest rates, ICICI Securities said in a note.  ==========================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.