Bank of Baroda, Canara Bank, Federal Bank shares rally; NIFTY Bank surges most in two months, here’s why

Banking shares were witnessing strong buying interest in trade on Tuesday, June 9, with the measure of banking stocks on the National Stock Exchange - NIFTY Bank index - surging as much as 1.77% or 960 points, it biggest single-day gain since April 10, to hit an intraday high of 55,024. All 12 stocks in the index were trading higher led by Bank of Baroda's over 5% gain.

Canara Bank, Federal Bank, IDFC First Bank, Punjab National Bank, IndusInd Bank, Union Bank of India, State Bank of India and ICICI Bank also rose between 1.8%-3.4%.

State-run lenders were also witnessing strong buying interest as the measure of PSU banks on the NSE - NIFTY PSU Bank index surged as much as 3.22% or 264 points to hit an intraday high of 8,463.90.

Banking stocks came under buying interest after the Reserve Bank of India (RBI) on Monday introduced a US dollar-rupee forex swap facility for fresh FCNR (B) deposits mobilised by banks for a minimum tenor of three years and a maximum of five years to attract foreign capital.

Foreign Currency Non-Resident (Bank) deposits are foreign currency term deposits maintained by non-resident Indians (NRIs).

Under the swap arrangement, a bank can sell US Dollars in multiples of USD one million to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period, a central bank circular said.

The swap facility will be available to the AD Category I banks for fresh FCNR (B) deposits mobilised in any freely convertible currency, including deposits that are renewed upon maturity, for a minimum tenor of three years and a maximum tenor of five years.

However, the swap facility with RBI will be available in US dollars only.

"The underlying deposits will have a lock-in period of one year. The banks may, at their discretion, allow premature withdrawal of such deposits after one year, as per their internal policy," the Reserve Bank of India (RBI) said.

However, swaps undertaken with the RBI cannot be cancelled.

Last week, the RBI announced a series of measures to attract overseas funds and ease external financing conditions.

Through another circular, the RBI also announced to introduce a US Dollar-Rupee Forex Swap Facility for external commercial borrowings (ECBs) of average maturity of three years and above by public sector undertakings (PSUs).

The swap facility has also been introduced for Overseas Foreign Currency Borrowings (OFCBs) raised by Authorised Dealer Category I banks for a minimum maturity of 3 years.