The cut in cash reserve ratio, positive outlook by rating agencies help bank stocks rebound
The 150-basis point (bps) reduction in the cash reserve ratio (CRR), or the proportion of deposits that banks set aside, and a positive outlook by rating agencies helped banking stocks rebound on Monday and recoup a part of the losses incurred last week.
The Bombay Stock Exchange (BSE) banking index (Bankex) surged 12.30 per cent, helped by a steep rise in ICICI Bank share prices. The sectoral index closed at 5,985.16 from its previous close of 5,535.68 on Friday.
| GAINING LOST GROUND | |||
| Bank | Open price | Closing price | % Chg |
| Axis Bank | 561.00 | 552.30 | 20.01 |
| ICICI Bank | 405.95 | 364.10 | 16.71 |
| IDBI bank | 65.95 | 64.95 | 14.01 |
| HDFC bank | 1070.25 | 1046.35 | 12.58 |
| SBI | 1381.00 | 1352.15 | 12.19 |
ICICI Bank’s stock, which fell nearly 20 per cent on Friday, went up 16.75 per cent to close at Rs 425.10 on BSE after ICICI Bank CEO and Managing Director K V Kamath said that the country’s second largest lender was in sound health, and that its deposit base had not been affected in the last three weeks.
The Bankex was the biggest sectoral gainer on BSE compared to the consumer goods index, which was the second best performer with a 9.93 per cent gain.
Over a period of 10 days ending October 10, while the sectoral index dipped by 22 per cent, ICICI Bank, the largest private sector lender, fell by 39 per cent.
Apart from ICICI Bank, the major gainers today were Axis Bank, IDBI Bank, HDFC Bank and State Bank of India (SBI) with their share prices rising upwards of 12 per cent. Axis Bank, which reported a 77 per cent rise in its second quarter net profit, saw its share price zoom 20 per cent.
Rating agencies also helped restore investor confidence in the falling banking stocks. Both Moody’s and Standard & Poor’s said that credit fundamentals of ICICI Bank continue to be sound.
In addition, minutes before the start of trading, Finance Minister P Chidambaram addressed a press conference and said that the Indian banking system was strong and that the depositors’ money was safe.
Chidambaram said the government was working with the Reserve Bank of India (RBI) on more measures to infuse liquidity in the system. A 150-bps reduction in CRR has infused Rs 60,000 crore, whereas banks have accessed Rs 91,000 crore through the liquidity adjustment facility (LAF).
“The irrational fear of investors was wiped out by Kamath’s appearance on television and the reduction in CRR has eased the liquidity crunch in the market,” said Vibhav Aggarwal, analyst at Angel Broking.
“It is not possible to sustain the level of growth in the banking index, but it should stabilise at this point. The rest will depend on the incremental news as most banks will announce their second quarter results,” said Brics Securities’ analyst Deepak Agrawal.
