account deficit, India is especially exposed to the expected gradual reduction of the U.S. Federal Reserve's quantitative easing.
"There is a kind of sense of panic in the market. We believe it is completely unfounded," Mayaram said.
The RBI also relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses.
In contrast to an earlier rule asking banks to cut their hold-to-maturity bond holdings gradually to 23 percent of deposits, the RBI on Tuesday allowed banks to retain those holdings at 24.5 percent of deposits.
"RBI is trying to ensure that the unintended consequences of their liquidity tightening steps that led to spike in long-end bond yields are corrected," said Ashish Parthasarthy, treasurer at HDFC Bank.
"These measures will bring down 10-year bond yield sharply and will also reduce banks' depreciation losses significantly."