Fourteen bank shares fell by 1.63% to 7.90% on BSE, trimming intraday losses after the central bank governor Raghuram Rajan said the hike in key interest rates cannot be immediately viewed as negative for growth.
Yes Bank fell 7.90% to Rs 356.25. The stock fell 13.24% at the day's low of Rs 335.60.
ICICI Bank fell 4.78% to Rs 987.30. The stock fell 7.33% at the day's low of Rs 960.90.
HDFC Bank fell 3.63% to Rs 659.05. The stock fell 7.66% at the day's low of Rs 631.50.
State Bank of India fell 3.44% to Rs 1746.55. The stock fell 6.29% at the day's low of Rs 1,695.
Among other bank shares, Union Bank of India (down 7.89%), Punjab National Bank (down 7.31%), IndusInd Bank (down 5.38%), Bank of Baroda (down 4.86%), Canara Bank (down 4.21%), Bank of India (down 3.99%), Federal Bank (down 3.29%), Axis Bank (down 3.25%), Kotak Mahindra Bank (down 3.06%) and IDBI Bank (down 1.63%), edged lower.
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The S&P BSE Bankex fell 4.18% at 12,166.86. It underperformed the S&P BSE Sensex, which was down 1.85% at 20,263.71.
The S&P BSE Bankex fell 6.67% at the day's low of 11,851.41 in mid-afternoon trade. The index rose 0.34% at the day's high of 12,740.50 in early trade.
Bank shares fell after the Reserve Bank of India (RBI) in a surprise decision, raised its key policy rate viz. the repo rate by 25 basis points to 7.5% from 7.25% after a monetary policy review today, 20 September 2013.
Nevertheless, bank shares trimmed steep intraday losses as the RBI simultaneously decided to start unwinding of the exceptional measures it had taken since mid-July to tighten liquidity with a view to dampening volatility in the foreign exchange market and after RBI Governor Dr. Raghuram Rajan made it a point that the marginal standing facility (MSF) rate is the effective policy rate today and this has been cut steeply.
Dr. Rajan said in a statement that the calibrated withdrawal of the exceptional measures that the RBI had taken since mid-July to tighten liquidity with a view to dampening volatility in the foreign exchange market will provide a boost to growth, reduce the financing distortions that are emerging in the market and reduce the strain on corporate and bank balance sheets. On net, the RBI's latest measures will reduce the cost of bank financing substantially while allowing the RBI to take an appropriately precautionary stance on inflation, he said.
He said that easing the exceptional liquidity measures was warranted given that the external environment has improved and given that the Government and the RBI have used the time since the measures were put in place to narrow the current account deficit and to ease its financing. The RBI has also announced an intention to return to normal monetary operations where the repo rate will return to being the effective policy rate and liquidity conditions need not be as tight as they currently are, Dr. Rajan said adding that the difference between the MSF and repo rate will be brought down to 100 basis points. Once the repo rate becomes the effective policy rate, it should be consistent with inflationary conditions in the economy, Dr. Rajan said. On net, the RBI's latest measures will reduce the cost of bank financing substantially while allowing the RBI to take an appropriately precautionary stance on inflation, he said.
"Over the next few weeks, together with the government, we will take a close look at corporate distress and bank NPAs to see how we can accelerate the process of resolution", Dr. Rajan said.
The minimum daily maintenance of the CRR prescribed by the RBI has been brought down from 99% of the requirement to 95% from the fortnight beginning 21 September 2013. The timing and direction of further actions on exceptional measures will be contingent upon exchange market stability, and can be two-way, the RBI said after a monetary policy review. However, any further change in the minimum daily maintenance of the CRR is not contemplated, the RBI said. The RBI kept the cash reserve ratio (CRR) unchanged at 4%.
The RBI Governor said that the RBI has implemented the full liberalization of bank branching, with some safeguards to encourage inclusion.
On Thursday, 19 September 2013, RBI allowed lenders to open branches, including in big cities, without its permission provided they fulfil certain conditions.
With the objective of further liberalising and rationalising the branch authorisation policy, the general permission to domestic scheduled commercial banks (other than RRBs) is now allowed to open branches in Tier 1 centres, the Reserve Bank said in a notification.
However, the automatic permission is subject to certain conditions including at least 25% of the total number of branches opened during the financial year must be opened in unbanked rural (Tier 5 and Tier 6) centres, it said. Unbanked centres refer to locations that do not have a brick and mortar structure of any scheduled commercial bank for customer based banking transactions.
RBI added that total number of branches opened in Tier I cities cannot exceed total number of branches opened in Tier 2 to 6 centres and all centres in the North Eastern States and Sikkim.
Banks, which for some reason are unable to meet their obligations of opening branches in Tier 2 to 6 centres in aggregate, or in unbanked rural centres during the financial year, must necessarily rectify the shortfall in the next financial year, it said.
RBI would have the option to withhold the general permission now being granted to banks which fail to meet the criteria along with imposing penal measures on banks which fail to meet the obligations, it added.
Detailed guidelines in this regard including reporting requirements and examples illustrating the above stipulations are being issued shortly, it said.
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