RBI's steps to curb rupee fall: How will it impact banks?

The RBI has announced measures to further rein in forex market volatility as the rupee ends lower once again at 59.76 to the dollar on Tuesday. It says bank borrowing from RBI will be limited to 0.5 percent of the bank's total deposits. The central bank adds banks must maintain 99 percent of their daily cash reserve ratio (CRR) requirement with the RBI, against the current 70 percent.

So, here is how economists are reading the RBI's move:

JP Morgan

With the rupee showing no signs of mean-reverting from current levels, authorities continued to clamp down hard on gold imports. It is seen to be an unproductive means of household saving and a significant drag on the current account deficit. 

Bank of America Merrill Lynch

These measures are in continuation of measures announced about a week ago where RBI had raised marginal standing facility (MSF) and capped liquidity adjustment facility (LAF) to 1 percent. This could lead to a further short-term correction in selected banks stocks as the market is likely to interpret this as a "pseudo" cash reserve ratio (CRR) hike and likely precursor to lending rate hikes that should further hurt growth / asset quality.

Deutsche Bank

This is yet another set of measures to address the current account deficit and forex volatility risks chilling economic activity. Barely a week after taking stringent measures to tighten liquidity, the central bank tightened the liquidity tap. By this announcement, the RBI has effectively halved the liquidity window in the span of one week.

Religare

Both the measures are aimed at reducing rupee carry in the system through tightened funding. It says that wholesale-funding would get incrementally expensive which is negative for Yes Bank, IndusInd, OBC and that implications for growth would remain an overhang on the entire banking/NBFC space.

Edelweiss

Liquidity in banking system will be further squeezed and the immediate impact will be felt in the short term money market rates. The wholesale borrowings and mismatch in asset liability management (ALM) at the shorter tenor would be vulnerable to RBI’s recent measures.

nasrin.sultana@network18online.com