Bank of India (down 0.99%), Canara Bank (down 0.91%), Union Bank of India (down 0.87%), IndusInd Bank (down 0.74%), HDFC Bank (down 0.74%), Punjab National Bank (down 0.69%), IDBI Bank (down 0.65%), ICICI Bank (down 0.6%), Axis Bank (down 0.59%), Kotak Mahindra Bank (down 0.42%) and State Bank of India (down 0.14%), edged lower.
However, Yes Bank (up 0.92%), Federal Bank (up 0.74%) and Bank of Baroda (up 0.06%), edged higher.
The S&P BSE Bankex was down 0.32% at 13,581.85. It underperformed the S&P BSE Sensex, which was up 0.27% at 19,229.46.
The Reserve Bank of India (RBI) kept its key policy rate viz. the repo rate unchanged at 7.25% after mid-quarter review of the monetary policy today, 17 June 2013. The central bank also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4%.
The RBI said in a statement that since its annual policy statement in May 2013, global economic activity has slowed and risks remain elevated, most recently on account of uncertainty over policies of systemic central banks. On the domestic front, macroeconomic conditions remain weak, hamstrung by infrastructure bottlenecks, supply constraints, lacklustre domestic demand and subdued investment sentiment. Inflation has moderated as projected.
However, upside pressures on the way forward from the pass-through of rupee depreciation, recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects. As recent experience has shown, shifts in global market sentiment can trigger sudden stop and reversal of capital from a broad swath of emerging economies, swiftly amplifying risks to the outlook. India is not an exception, the RBI statement said.
In its outlook, RBI said that at the global level, the International Monetary Fund (IMF) has warned of non-trivial risks of the global economy encountering a soft patch in the months ahead. On the domestic front, last year's robust rabi production and the monsoon performance so far augur well for growth prospects. The spatial and temporal distribution of rainfall over the next three months will be crucial in determining the performance of agriculture. The continuing weakness in manufacturing activity needs to be urgently reversed. Key to reinvigorating growth is accelerating investment by creating a conducive environment for private investment, improving project clearance and implementation and leveraging on the crowding-in role of public investment.
On the inflation front, easing commodity prices at the global level and weaker pricing power of corporates at the domestic level are having a softening influence. Given that food inflation remains high, the inflation outlook will be influenced by concerted efforts to break food inflation persistence. The inflation outlook going forward will be determined by suppressed inflation being released through revisions in administered prices, including the minimum support prices (MSP) as well as the recent depreciation of the rupee, the statement said.
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The rupee declined 6.6% during the period from 22 May 2013 to 11 June 2013 due to sell-off by foreign institutional investors, reflecting risk-off sentiment triggered by apprehensions of possible tapering off of quantitative easing by the US Federal Reserve.
It further added that softer global commodity prices and recent measures to dampen gold imports are expected to moderate the current account deficit (CAD) in 2013-14 from its level last year. The main challenge is to reduce the CAD to a sustainable level; the near-term challenge is to finance it through stable flows. The most recent number on the Centre's fiscal deficit, at 4.9% of GDP for 2012-13, has turned out better than expected and instills confidence in the Government's commitment to contain the fiscal deficit for 2013-14 at 4.8%. Perseverance with this consolidation should help in mitigating the twin deficit risks to the outlook. These positive developments, which have been acknowledged by international credit rating agencies, should have a favourable impact on investor confidence.
In its guidance, RBI said that its monetary policy stance will be determined by how growth and inflation trajectories and the balance of payments situation evolve in the months ahead. It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth. While several measures have been taken to contain the current account deficit, we need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows. RBI said it stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments.
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