Indian banks rally after RBI details FX swap facility

Shares of Indian banks rose on Tuesday after the Reserve Bank of India released detailed guidelines for a concessional foreign exchange swap facility meant to support overseas borrowings. The Nifty Bank index advanced about 1.2% in Mumbai trading as the broader Nifty 50 gained 0.2%.

The central bank said the swap facility, available through Sept. 30, will compensate lenders for hedging costs linked to three- to five-year foreign currency non-resident deposits. The facility is part of a package of measures announced to attract foreign capital as growth slows, inflation remains elevated and the rupee faces pressure from rising crude prices and persistent equity outflows.

Market data at 10:18 a.m. IST showed the Nifty Bank index up 1.2%. State Bank of India rose 0.7%, HDFC Bank gained 0.1%, and ICICI Bank was up 1.4%, helping the private banks index climb 1.1%. Banking shares had recorded mixed results in prior sessions after a 0.4% increase on Friday and a 0.8% decline on Monday.

Analysts welcomed the additional operational details. Citi Research wrote, “This is likely to be treated as an additional announcement by the markets as there was no full clarity on this last Friday,” and estimated the programme could generate $25 billion to $30 billion of overseas borrowings. Jefferies projected potential inflows of $50 billion to $70 billion if banks offer leverage on deposits made by non-residents.

Alongside the swap facility, the RBI said all new issuances of 15-, 30- and 40-year government bonds will be included under the Fully Accessible Route to improve foreign investor access to long-dated sovereign debt. The central bank also removed limits on short-term investments, concentration norms and individual security caps for foreign investment under the general route.

RBI Governor Sanjay Malhotra said the measures, together with tax incentives announced by the government, should encourage greater foreign participation in government borrowing programmes. ICICI Securities noted the steps could lift the share of stable medium-term foreign currency deposits for banks and reduce reliance on domestic deposit mobilisation as households shift savings toward equities and other assets.

Despite Tuesday’s gains, banking stocks remain lower year to date, with the banking index down about 8.2% and the benchmark Nifty off roughly 11.4%. The RBI said the combined measures aim to attract dollar inflows, ease funding pressures for both the government and lenders, and support financial markets while broader economic challenges continue.