Fourteen bank stocks lost 0.81% to 3.57% at 11:45 IST on BSE after the Reserve Bank of India cut its benchmark lending rate viz. the repo rate by 25 basis points to 7.25% after a monetary policy review today, 2 June 2015, matching market expectations
The Reserve Bank of India (RBI) made the announcement at 11:00 IST.
Union Bank of India (down 3.57%), Allahabad Bank (down 3.47%), Andhra Bank (down 2.7%), Axis Bank (down 1.14%), Yes Bank (down 1.64%), Canara Bank (down 1.77%), Bank of India (down 1.91%), ICICI Bank (down 0.81%), IndusInd Bank (down 2.58%), Bank of Baroda (down 2.09%), State Bank of India (down 1.89%), Kotak Mahindra Bank (down 1.83%), Punjab National Bank (down 1.14%) and HDFC Bank (down 1.06%) declined.
The BSE Bankex was down 1.48% at 21,077.06 and was the top loser among the sectoral indices on BSE. It underperformed the Sensex, which was down 1.11% at 27,540.03.
The Reserve Bank of India (RBI) kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL).
The RBI said that commercial banks have started passing through some of the past rate cuts into their lending rates. The growth in bank credit remains subdued. The central bank said that banks should pass through the sequence of rate cuts into lending rates. The RBI suggested that a targeted infusion of bank capital into scheduled public sector commercial banks is required so that adequate credit flows to the productive sectors of the economy as investment picks up.
The RBI said that since the first bi-monthly monetary policy statement of 2015-16 issued in April 2015, incoming data suggest that the global recovery is still slow and getting increasingly differentiated across regions.
The risks to inflation identified in April, still cloud the picture, the RBI said. First, some forecasters, notably the IMD, predict a below-normal southwest monsoon. Second, crude prices have been firming amidst considerable volatility, and geo-political risks are ever present. Third, volatility in the external environment could impact inflation. Therefore, a conservative strategy would be to wait, especially for more certainty on both the monsoon outturn as well as the effects of government responses if it turns out to be weak, it added.
With still weak investment and the need to reduce supply constraints over the medium term to stay on the proposed disinflationary path (to 4% in early 2018), a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty, the RBI said in a press release. Meanwhile banks should pass through the sequence of rate cuts into lending rates, it added.
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