Both PSU and private banking stocks were trading deep in the red on Monday, March 30, after the Reserve Bank of India (RBI)  took actions to support the depreciating Indian Rupee (INR) against the US Dollar (USD).

At 11:30 AM, Bank Nifty was down 2.59%, Nifty PSU Bank was down 2.78% and Nifty Private Bank was down 2.47%, with all constituents in the red.

Usually, banks are allowed to have net open positions of up to 25% of their respective tier-1 capital, while there are no caps on gross positions.

Tier-1 capital in Indian banking is a bank’s core capital, primarily composed of equity share capital, statutory reserves, and disclosed free reserves. It acts as a primary, high-quality buffer to absorb financial losses without disrupting operations.

Banks have generally held large open positions in the onshore market, with most of them matched by open positions in the offshore (Non-Deliverable Forwards) market.

After the markets closed on Friday, the RBI capped the total positions to $100 million, therefore banks are seeing huge unwinding in the onshore and the offshore market. This will lead to mark-to-market losses across private, PSU and foreign banks.

Some of these losses will have to be booked in the current quarter itself, as the quarter and financial year are about to come to an end.

After the INR closed nearly at 95 against the USD, media reports suggest that there might be a sharp appreciation towards 93 against the USD, as banks unwind positions on Monday.