Banking shares have rallied up to 8% in early morning deals on the National Stock Exchange after the Reserve Bank of India on Monday after market hours eased interest rate on borrowings under the marginal standing facility (MSF) by 50 basis points (bps) to 9%.
The MSF is an emergency window that banks borrow from when faced with a funds crunch.
The NSE banking index Bank Nifty has surged 3.2% at 10,403 points as compared to 0.95% rise in benchmark index CNX Nifty.
YES Bank, IndusInd Bank, Kotak Mahindra Bank, Axis Bank, Union Bank of India, ICICI Bank and Bank of Baroda from Bank Nifty are up in the range of 3-8%. State Bank of India, Bank of India, HDFC Bank, Punjab National Bank and Canara Bank are trading higher between 2-3% on the NSE.
The RBI cut the MSF rate by 75 bps to 9.5% from 10.25% in September as part of its liquidity easing measures.
Earlier in July, the RBI raised the MSF rate by 200 bps to 10.25% to stabilise the volatile rupee. Effectively, this saw the cost of borrowing under this window go up 300 bps over than the repo rate.
As an immediate impact of these measures, short-term interest rates are likely to reduce proportionately. The measures are positive for more wholesale funded banks, as it is likely to result in further decline in their costs of funds by roughly 5-10bp on an annualized basis (the reduction in cost across banks would be in congruence with its dependence on wholesale funds), says analyst at Angel Broking in a note.
The MSF is an emergency window that banks borrow from when faced with a funds crunch.
The NSE banking index Bank Nifty has surged 3.2% at 10,403 points as compared to 0.95% rise in benchmark index CNX Nifty.
YES Bank, IndusInd Bank, Kotak Mahindra Bank, Axis Bank, Union Bank of India, ICICI Bank and Bank of Baroda from Bank Nifty are up in the range of 3-8%. State Bank of India, Bank of India, HDFC Bank, Punjab National Bank and Canara Bank are trading higher between 2-3% on the NSE.
The RBI cut the MSF rate by 75 bps to 9.5% from 10.25% in September as part of its liquidity easing measures.
Earlier in July, the RBI raised the MSF rate by 200 bps to 10.25% to stabilise the volatile rupee. Effectively, this saw the cost of borrowing under this window go up 300 bps over than the repo rate.
As an immediate impact of these measures, short-term interest rates are likely to reduce proportionately. The measures are positive for more wholesale funded banks, as it is likely to result in further decline in their costs of funds by roughly 5-10bp on an annualized basis (the reduction in cost across banks would be in congruence with its dependence on wholesale funds), says analyst at Angel Broking in a note.
