Bank shares were mixed at 11:30 IST on BSE after the Reserve Bank of India kept key rates unchanged in its fifth bi-monthly monetary policy review today, 2 December 2014.
Among private sector banks, Yes Bank (down 0.74%), IndusInd Bank (down 0.67%), HDFC Bank (down 0.49%), Federal Bank (down 0.41%), ING Vysya Bank (down 0.13%) and City Union Bank (down 0.05%), edged lower. Kotak Mahindra Bank (up 0.58%), ICICI Bank (up 0.52%) and Axis Bank (up 0.13%), edged higher.
Among public sector banks, Punjab National Bank (up 3.06%), Allahabad Bank (up 2.92%), Bank of Baroda (up 2.15%), Canara Bank (up 1.79%), Bank of India (up 1.78%), Syndicate Bank (up 1.55%), Andhra Bank (up 1.41%), IDBI Bank (up 1.35%), UCO Bank (up 0.98%), Bank of Maharashtra (up 0.81%), Corporation Bank (up 0.70%), State Bank of India (up 0.70%), Union Bank of India (up 0.55%), Indian Bank (up 0.51%), Dena Bank (up 0.50%) and Central Bank (up 0.25%), edged higher. United Bank of India (down 0.60%), Punjab & Sind Bank (down 0.48%) and Vijaya Bank (down 0.20%), edged lower.
The BSE Bankex was up 0.10% at 21,242.52, up from the day's low of 20,958.72. It outperformed the Sensex, which was down 0.15% at 28,515.45.
The BSE Bankex had outperformed the market over the past one month till 1 December 2014, rising 8.80% compared with 2.49% rise in the Sensex. The index had also outperformed the market in past one quarter, rising 15.80% as against Sensex's 6.30% rise.
The Reserve Bank of India (RBI) in its fifth bi-monthly monetary policy review today, 2 December 2014, kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8%. Consequently, the reverse repo rate under the LAF will remain unchanged at 7%, and the marginal standing facility (MSF) rate and the bank rate at 9%.
The RBI kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL). The RBI will continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system through auctions. The central bank will also continue with daily one-day term repos and reverse repos to smooth liquidity.
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In its statement, RBI said that since the fourth bi-monthly monetary policy statement of September 2014, the global economy has slowed, though the recent sharp fall in crude prices will have a net positive impact on global growth.
Domestic activity weakened in Q2 September 2014 and activity is likely to be muted in Q3 December 2014 also because of a moderate kharif harvest. A rise in investment is critical for a sustained pick-up in overall economic activity, it added.
The fiscal outlook should brighten because of the fall in crude prices, but weak tax revenue growth and the slow pace of disinvestment suggest some uncertainty about the likely achievement of fiscal targets, and the quality of eventual fiscal adjustment. The government, however, appears determined to stay on course, RBI said.
The RBI said that with deposit mobilisation outpacing credit growth and currency demand remaining subdued in relation to past trends, Indian banks are flush with funds, leading a number of banks to reduce deposit rates. Weak domestic demand and the rapid pace of recent disinflation are factors supporting monetary accommodation, the RBI said in its monetary policy statement. The central bank said that the weak transmission by commercial banks of the recent fall in money market rates into lending rates suggests monetary policy shifts will primarily have signaling effects for a while.
Over the next 12-month period, inflation is expected to retain some momentum and hover around 6%, except for seasonal movements, as the disinflation momentum works through. Accordingly, the risks to the January 2016 target of 6% appear evenly balanced under the current policy stance, RBI said.
A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle, RBI added.
Meanwhile, the Department of Financial Services, Ministry of Finance, Government of India yesterday, 1 December 2014, invited suggestions from general public on various parameters as to how to improve performance of public sector banks.
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