Bank Shares Surge Up to 2% on RBI Measures to Attract Dollar Inflows, Led by Gains in Canara, Yes Bank, and PNB

RBI Keeps Repo Rate Unchanged, Announces Measures to Support Rupee

The Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 5.25 percent on Friday, while retaining its "neutral" policy stance. This decision helped lift investor sentiment, leading to a surge in banking shares. The Nifty Bank index rose as much as 0.6 percent, extending gains for a fourth straight session, with 11 of its 14 constituents trading in the green.

The RBI's measures aimed at attracting foreign currency inflows and supporting the rupee were well-received by investors. The central bank announced a concessional foreign exchange swap facility for about four months to incentivise external commercial borrowings by public sector undertakings. Additionally, the RBI will provide a similar facility to bear the full hedging cost for banks raising three-to-five-year deposits from non-resident Indians (NRIs) until September 30.

The RBI also restored the time limit for firms to realise and repatriate export proceeds to nine months. This move is expected to improve foreign currency funding and deposit mobilisation for banks.

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Among banking stocks, Canara Bank emerged as the top gainer, rising more than 2 percent. Other notable gainers include Punjab National Bank, which advanced 1.85 percent, and Yes Bank, which gained 1.27 percent. Shares of ICICI Bank, State Bank of India, AU Small Finance Bank, and Union Bank of India rose up to 1.5 percent.

The RBI also announced a series of measures aimed at encouraging inflows into India's debt market. To attract foreign capital, the government exempted foreign investors from income tax on interest income and capital gains arising from investments in government securities.

Following the announcements, the rupee strengthened to 95.2450 against the US dollar, from 95.67 before the policy outcome. The measures come at a time when the rupee has remained under pressure, having weakened more than 6 percent so far this year, making it the second-worst performing Asian currency on a year-to-date basis.

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The RBI's latest steps are similar to concessional swap windows introduced in 2013, which had helped attract substantial foreign currency deposits into the banking system.