Led by YES Bank, shares of the banking sector took a major beating at the Dalal Street with bankex index falling by 4.6 per cent today due to additional liquidity tightening steps taken by RBI to check rupee slide.
Yes Bank's stock recorded the steepest fall of 12.6 per cent, followed by Bank of India 8.85 per cent and IndusInd Bank by 8.46 per cent.
Shares of YES Bank closed at Rs 383.35 per cent on the BSE despite the lender posting 38 per cent increase in the net profit for the quarter ended June 30, 2013.
However, in absolute terms, shares of Axis Bank recorded a decline of Rs 78.75 per unit followed by SBI Rs 58.2 per share and YES Bank Rs 55.40 per share.
In percentage terms, shares of Axis Bank declined by 6.55 per cent while Canara Bank by 8.39 per cent.
Among blue-chips, PNB tumbled 4.84 per cent, while ICICI Bank was down 3.73 per cent, SBI (3.13 per cent) and HDFC Bank (3.4 per cent).
Following the weakness in these stocks, the BSE banking index comprising of 13 stocks of various public and private sector banks plunged 4.6 per cent to 12,237.89.
The index was the worst performer among the 13 sectoral indices leading to the 211 point slide in the BSE benchmark Sensex.
With the rupee still continuing to be weak, the Reserve Bank yesterday announced additional liquidity tightening measures to contain excessive speculation and volatility in the foreign exchange market.
RBI has reduced the liquidity adjustment facility (LAF) for each bank from 1 per cent of the total deposits to 0.5 per cent, thus limiting the access to borrowed funds from the central bank. The limit will come into force with immediate effect and continue till further notice, the RBI has said.
In another measure to suck out liquidity from the system, RBI has asked banks to maintain higher average CRR (cash reserve ratio) of 99 per cent of the requirement on daily basis as against earlier 70 per cent. CRR is portion of deposits that banks are required to keep with RBI.
According to Milan Bavishi head research, Inventure Growth and Securities, these steps will make it harder for lenders to access funds as the banks have to maintain higher CRR. Immediate effect was seen on banking stocks.
"It is a double edged sword. On one side, by giving support to rupee RBI may be able to stem some FII outflow, control mounting import cost of crude oil and gold, etc., however on the other side, reducing liquidity flow in the economy may cause risks to overall growth prospects," he said.