Bank stocks fall on RBI's decision to withdraw ₹2,000 currency notes

Shares of state-owned as well as private sector banks remained in focus on Monday after the Reserve Bank of India (RBI) on Friday announced the withdrawal of the ₹2,000 denomination banknote from circulation. The central bank has asked all the banks to provide deposit and exchange facility for ₹2,000 banknotes till September 30, 2023.

The move has triggered a sell-off across the banking stocks with most of the index heavyweight trading in red, led by private lenders IndusInd Bank, Axis Bank, HDFC Bank, ICICI Bank, Federal Bank, and Kotak Mahindra Bank. In the public sector space, State Bank of India (SBI) and Bank of Baroda were also under stress.

In the first hour of trade so far, the BSE Bankex index declined as much as 0.4%, while the BSE benchmark Sensex rose 0.4% to 61,990 levels. IndusInd Bank topped losers’ chart on the BSE with a loss of 1.2%, followed by Bank of Baroda, which slipped nearly 1%. Shares of Axis Bank, HDFC Bank, ICICI Bank, Federal Bank, and Kotak Mahindra Bank dipped up to 1%.

Meanwhile, SBI, the country’s largest commercial bank, swung between gains and losses and was trading near baseline.

“The undercurrent of the market is bullish. Bank Nifty is likely to gain more traction since the ₹2000 note withdrawal is positive for banks. It will add to the deposits of banks and increase their CASA thereby boosting their bottom line,” says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In a post market release on Friday, the RBI announced withdrawal of ₹2,000 denomination bank note from circulation. The currency will continue to remain a legal tender before it is phased out in a time-bound manner.  

“To complete the exercise in a time-bound manner and to provide adequate time to the members of the public, all banks shall provide deposit and/or exchange facility for ₹2000 banknotes until September 30, 2023,” RBI said in a release.

“In order to ensure operational convenience and to avoid disruption of regular activities of bank branches, exchange of Rs 2000 banknotes into banknotes of other denominations can be made up to a limit of ₹20,000/- at a time at any bank starting from May 23, 2023,” the release said.

The ₹2000 denomination banknote was introduced in November 2016 to meet the currency requirement of the economy post demonetization wherein the government withdrew the legal tender status of all ₹500 and ₹1000 banknotes in circulation at that time.