Banks rally after RBI eases cash, bond holding rules.

The Bank Nifty surged 5.4 percent in early trade after the Reserve Bank of India eased cash and bond holding rules for banks on Tuesday.

 

The RBI relaxed rules on mandatory bond holdings for banks, which would help protect lenders from large mark-to-market losses and said it would buy long-dated government bonds worth 80 billion rupees.

 

Government bonds rallied and the rupee was marginally stronger on Wednesday after the RBI said late on Tuesday it will buy bonds and eased bond-holding rules for banks to ease tight cash conditions.

 

The benchmark 10-year bond yield fell as much as 69 basis points to 8.21 percent. It was last trading at 8.28 percent.

 

The rupee also posted some gains on the back of strong local stocks, with banking shares leading the gains. The rupee was at 63.19/20 versus Tuesday's close of 63.25/26.

 

Interest rate swaps were also sharply down. The five-year OIS was down 60 basis points at 8.35 percent, while the one-year was down 44 bps at 9.45 pct, traders said.