Rajan pep talk fuels bank rally,rupee up 1.6% to close at 66.01

BSE Sensex up 412 points,banking index jumps over 9%; ‘currency swap a big positive’.

Written by Sandeep Singh | New Delhi | Published: September 6, 2013 2:44 am

BSE Sensex up 412 points,banking index jumps over 9%; ‘currency swap a big positive’.

The banking sector index at the stock market soared by over 9 per cent as new Reserve Bank of India Governor Raghuram Rajan’s taking-over speech pushed it to its highest intra day gain in over four years.

The banking stocks have been the biggest losers on the stock exchanges ever since the Reserve Bank of India announced its liquidity tightening measures from July onwards.

The rupee,too,appreciated by 1.6 per cent on Thursday to close at 66.01 against the dollar,while the BSE Sensex rose by 2.2 per cent or 412 points to close at 18,979.76. After the Reserve Bank of India’s announcement on July 15 that raised short term rates and tightened liquidity,bank stocks took a beating,slipping by as much as 50 per cent.

“The Governor was affirmative,assertive and came with a positive tone. He was clear on his focus areas and announced a set of measures that will boost the foreign reserves of the country,” said Nandkumar Surti,MD and CEO,JP Morgan AMC.

Experts said that the currency swap facility announced is a big positive and the fact that all restrictions imposed by Reserve Bank of India over the last couple of months will be lifted brought some relief to the market.

“Markets found comfort in the Governor’s speech. There is expectation that the dollar-rupee volatility,which was hurting the banking segment,will stabilise and going forward that will lead to RBI rolling back its measures that pushed the short-term rates,” said Ritesh Jain,CIO,Tata Mutual Fund.

Others feel that the measures announced will have to be followed by more work,both by the Reserve Bank of India and the government in a bid to keep the momentum going.

“More work needs to be done. The economic activity has to begin on building power projects,constructing roads and infrastructure and then we will see an overall revival of sentiments,” said a top official with a leading private sector bank.

New steps could help banks bring in $40 bn

Mumbai: The Reserve Bank’s new measures for the banking sector alone have the potential to bring $40 billion (around Rs 2.64 lakh crore) of inflows into the economy,say experts.

On Wednesday,RBI Governor Raghuram Rajan announced a hike in the current overseas borrowing limit of banks from 50 per cent of unimpaired Tier I capital to 100 per cent. Banks can swap borrowing with the RBI at a concessional rate of 100 bps below the ongoing swap rate prevailing in the market. “This creates a potential room for the banking system to raise approximately $30 billion,” says Shubhada Rao,chief economist,Yes Bank.

Experts expect another $5-10 billion to flow in through the FCNR (B) swap scheme. Following the recent increase in FCNR (B) deposit rate,the RBI has offered a window to banks to swap their incremental FCNR (B) deposit,mobilised for a minimum period of 3-years,at a fixed rate of 3.5 per cent for the tenure of the deposit.

These schemes will remain open up to November 30,2013. Morgan Stanley said the RBI is trying to provide forex cover to banks at a reasonable cost so that they can collect dollar deposits in normal course and convert them into rupees using this forex cover. ENS

Gold falls on heavy sell-off

New Delhi: Gold on Thursday fell by Rs 1,250 per 10 grams to Rs 30,950 in New Delhi on heavy sell-off by stockists as rupee recovered after RBI’s fresh measures amid a weakening trend overseas. Gold in overseas markets had dropped by 0.70 per cent to $1,381.35 an ounce as investors shifted to stocks. PTI

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