Bank Nifty drops 4% after RBI’s move to cap NOP in onshore mkt

Shares of major banks on Monday declined sharply, with the Bank Nifty falling nearly 4 per cent, following the Reserve Bank of India’s (RBI's) surprise move to cap banks’ net open position (NOP) in the onshore forex market at $100 million.

- SUBRATA PANDA

This could lead to a mark-to-market (MTM) loss of ₹3,000 crore-4,000 crore for banks in the fourth quarter, as outstanding positions are estimated to be large — $30 billion-40 billion.

The directive, issued on Friday and to be complied with by April 10, comes at a time when dollar-long bets had significantly built up.

Analysts say this move may have been driven by the sharp depreciation of the domestic currency against the dollar and the wider spread between the offshore and onshore markets.

In times of low volatility, the three-forward-month spread for the dollar-rupee contract in offshore and onshore markets is low—in the range of 5-15 basis points.