Banking shares mainly public sector undertaking (PSUs) banks have extend their previous day’s rally and are trading higher by up to 6% after the Reserve Bank of India (RBI) reduced the cash reserve ratio (CRR) by 25 basis points to 4.5% on Monday.
Union Bank of India and Oriental Bank of Commerce have rallied more than 5% each on the National Stock Exchange. The market price of both these state-owned banks surged almost 15% in past two trading sessions.
Punjab National Bank, Indian Overseas Bank, Canara Bank, Allahabad Bank and Bank of India are trading higher by 3-4%, while, State Bank of India, Bank of Baroda and IDBI Bank are up 1-2% on the NSE.
The NSE, state-owned banking shares CNX PSU Bank index has surged almost 3% as compared to 0.25% gain in Bank Nifty. The benchmark index S&P CNX Nifty is trading marginal higher by 0.17% at 5,619 points at 1024 hours.
The RBI’s CRR cut move is expected to increase liquidity in the banking system by Rs 17,000 crore.
“Release of these non-income generating funds will marginally lower the cost of funds for banks. The lower cost of funds can help bring down lending rates on select portfolio, especially in the retail segment, and add momentum to the pick-up in seasonal demand in the second half of the current fiscal,” said rating agency CRISIL in monetary policy review.
“Although liquidity conditions are comfortable, the RBI expects a pick-up in credit demand on account of the combined impact of outflows from advance tax payment and currency demand due to onset of the festival season,” according to research firm Angel Broking.
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Meanwhile, according to media reports, the Cabinet Committee on Economic Affairs (CCEA) may take a decision on the restructuring proposal for state electricity boards (SEBs) and power distribution companies (discoms) on Thursday. The power sector’s current debt is 7% of the banking sector’s outstanding loans, according to the report.