Shares banking stocks have rallied on the bourses after the Reserve Bank India (RBI) cut the cash reserve ratio (CRR) by 50 basis points to 5.50% from 6% earlier. The CRR, the proportion of deposits that banks have to hold with the RBI, is a popular instrument to inject cash into the system.
“As a result of the reduction in the CRR, around Rs 320 billion of primary liquidity will be injected into the banking system,” the RBI Governor said in his policy statement.
With core inflation still sticky, the RBI as expected left its policy repo rate unchanged at 8.50% for the second consecutive review after raising rates 13 times between March 2010 and October 2011. The reverse repo rate remains unchanged at 7.5%.
The Bombay Stock Exchange (BSE), banking index, Bankex the largest gainer among the sectoral indices is up 172 points or 1.6%, compared with less than 1% gain the benchmark index Sensex.
Among the individual stocks, Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, ICICI Bank, State Bank of India, are trading higher in the range of 1 – 3% on the BSE.