Bank Nifty falls over 500 pts on rising bond yields, RBI liquidity measures; PSU banks lead losses

Indian equity markets witnessed broad-based selling on Monday, with the Sensex and Nifty falling as much as 0.8%, dragged down by banking, IT and FMCG stocks. Banking stocks came under pressure as rising government bond yields and the Reserve Bank of India’s (RBI) latest liquidity-tightening measures weighed on investor sentiment.

The Nifty Bank index fell as much as 518 points, or 0.94%, to an intraday low of 54,738.35. The Nifty PSU Bank index led sectoral losses, declining 1.43%, while the Nifty Private Bank index fell 0.61% to 27,057.05.

Among individual stocks, State Bank of India (SBI) fell 1.89% to ₹941, leading losses among major banking stocks. Canara Bank declined 1.28% to ₹118.06, while Punjab National Bank (PNB) dropped 1.56% to ₹115.15. Bank of India fell 1.47% to ₹132.49, and Union Bank of India shed 1.21% to ₹170.96.

Among private sector lenders, ICICI Bank declined 1.41% to ₹1,335.90, while Axis Bank fell 0.75% to ₹1,249.60. HDFC Bank slipped 0.31% to ₹705.05, and Kotak Mahindra Bank edged down 0.12% to ₹440.45.

Bond yields rise as RBI tightens liquidity

The pressure on banking stocks came as government bond yields rose sharply following the RBI’s latest liquidity-draining measures and its shift towards a calibrated tightening stance, fuelling concerns about the interest-rate outlook.

The yield on the benchmark 6.94% government security maturing in 2036 climbed to 7.3553% on Monday, from 7.2994% at Friday’s close.

The RBI has announced an open market operation (OMO) sale auction of government securities worth ₹25,000 crore on October 13, 2026. The sale is expected to drain liquidity from the banking system.

Separately, the central bank has opened a special window to meet the entire daily dollar requirements of three public sector oil marketing companies — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. The facility came into effect on October 12 and will remain in place until further notice.

The RBI has also introduced measures to curb speculative activity in the foreign exchange market. These include restrictions on rebooking cancelled rupee-linked foreign exchange derivative contracts and a reduction in the threshold for undertaking certain derivative transactions without establishing underlying exposure from $100 million to $5 million.

The measures also require additional documentation to verify underlying exposures and introduce a Foreign Exchange Risk Reserve (FERR) for specified rupee-linked derivative contracts.

Systematix flags concerns over rupee, forex reserves

Systematix Institutional Research said the RBI’s latest foreign exchange (FX) restrictions, announced soon after the conclusion of its $143 billion dollar swap scheme, signal continued concerns over rupee weakness, speculative positioning and foreign institutional investor (FII) outflows. The measures, it said, resemble responses typically seen during periods of currency stress rather than those of a central bank exuding confidence.

“The measures follow a $143 billion swap-scheme mobilisation, including $133 billion of FCNR(B) deposits at about 11% cost. A larger forex buffer should have supported the rupee; instead, the RBI is deploying defensive controls,” the brokerage said.

According to the report, foreign currency assets (FCA) have declined from a peak of $648 billion on September 4 to $604.7 billion. Since March 2026, FCA has increased by only $54 billion against the $143 billion mobilised through the scheme, leaving a shortfall of about $90 billion in the first half of FY27, or roughly $15 billion a month.

At this pace, the funds mobilised could be exhausted by the fourth quarter of FY27, the brokerage said.