The bank stocks are under pressure today on concerns about the impact of the RBI’s action on forex open positions. The Reserve Bank of India’s move to tighten forex rules has triggered a sharp debate among market participants on social media. Top market voices are debating whether the RBI’s move, amid rising crude prices due to the ongoing Middle East conflict and a weakening rupee, is an appropriate call.
The RBI recently asked banks to cap their net open rupee positions in the foreign exchange market at $100 million by April 10. The move comes at a time when the rupee is under pressure and global oil prices are rising due to geopolitical tensions in the Middle East.
Uday Kotak warns of unconventional policy moves amid Middle East tensions
Uday Kotak, Founder and Director of Kotak Mahindra Bank described the current Middle East conflict as highly uncertain which often lead to unusual policy actions.
“The Middle East situation is now in uncharted territory. That leads to unconventional policy actions. A move on sharp reduction of Indian bank’s open fx positions in a short period seems to be in that category,” he said in a post on X .
He also drew a parallel with past crises, adding, “Reminds me of Bimal Jalan play book as RBI Governor in 1998 when the Rupee was depreciating sharply post Asian crisis.”
Kotak further said that if geopolitical tensions worsen, policymakers may need to explore options to attract foreign currency inflows. “If things get worse geo politically, is there an opportunity for a new version of FCNR(B) scheme?” he added.
According to a Reuters report, banks have raised concerns that the sudden tightening of forex limits could force them to unwind positions quickly, leading to potential losses. They believe the rule may impact arbitrage trades between onshore and offshore markets, increasing short-term volatility.
‘No need to panic’: Samir Arora
However, founder of Helios Capital, Samir Arora downplayed fears of large losses due to the unwinding of forex positions.
“Just relax about this supposed 4,000 crore loss on FX unwinding,” Arora said in a post on X.
He pointed out that the rupee has already depreciated significantly in recent weeks, which means banks were likely sitting on profits from these positions.
“Just in the past month the Rupee has depreciated by over 4%. All these positions would not have been set up for the first time at Friday 27 close. These banks would be in the money big time till now and now they will give up some of those profits. Big deal,” he said.
Arora also suggested that a large portion of aggressive positions may be held by foreign banks. “Also some of the bigger positions may have been taken by more aggressive foreign banks (like Citi etc) – who knows but we don’t care beyond a point for them as far as our market is concerned,” he added.