After May rout, banks see RBI's FCNR move as a tailwind

Brokerages view the RBI's move to absorb foreign exchange hedging costs on fresh FCNR(B) deposits as a significant tailwind for banking stocks following a May sell-off where foreign portfolio investors pulled out ₹23,141 crore from banking and financial stocks. On 5 June, RBI announced it will bear the hedging expense (around 3.0-3.5%) on 3-5 year fresh or renewed deposits, enabling banks to raise dollar deposits at lower cost without interest rate caps, leverage limits, or cash reserve requirements, potentially mobilizing over $50 billion. The measure is expected to ease funding pressures, improve liquidity, support credit growth, moderate elevated credit-to-deposit ratios, and boost net interest margins. Sector tailwinds include robust 14-16% credit growth, moderation in crude oil prices, and comfortable valuations, with the Nifty Bank index down 2.5% in FY26.