The Bank Nifty index has been falling sharply, raising the question of how banks are impacted by events like war.
Geopolitical tensions shake investor confidence, disrupt trade, and increase economic uncertainty, but what is often hidden in plain sight is how much of the decline reflects underlying economic fragility, interest rate pressures, or exposure to risky assets, rather than just headline news about conflicts.
Are we focusing too much on global events while missing the structural weaknesses in the banking sector?
But isn’t the ₹4,000 crore collective loss for the whole banking sector just too small? I mean, HDFC alone does something like ₹15,000-20,000 crores per quarter, I think, or lower. And SBI too. So I think ₹4,000 crores spread across all the banks is not the problem.
Doubt: Why would the banks be incurring losses by unwinding their long-dollar positions?
They would incurr losses only when they sell below the buy/entry price, right?
With dollar going up, they would naturally be selling at a price above their entry price, unless they have entered into fresh long-dollar positions very recently.
Mostly they should be in profit, given how rupee has fallen by almost 4% in a month.
Or, is it because of the size of their positions that, once they start unwinding/selling, the dollar will decline steadily, making them sell some of their dollars at prices lower than their entry price? Even in this case, on a net basis, they should still be in profit.
The banks have time till April 10 to comply, so they won’t be dumping them all at once, which would make the fall gradual and mostly they would be in profit.
