Bank shares rose at 9:24 IST on BSE after the Reserve Bank of India reduced key rates by 25 basis points before trading hours today, 4 March 2015.
Among private sector banks, Kotak Mahindra Bank (up 2.79%), ING Vysya Bank (up 2.50%), Axis Bank (up 2.26%), ICICI Bank (up 2.15%), Yes Bank (up 2.04%), HDFC Bank (up 1.54%), City Union Bank (up 1.49%), IndusInd Bank (up 1.46%) and Federal Bank (up 1.09%), edged higher.
Among public sector banks, Indian Bank (up 3.38%), Punjab National Bank (up 3.25%), Bank of Baroda (up 3.14%), Union Bank of India (up 2.99%), Bank of Maharashtra (up 2.87%), State Bank of India (up 2.64%), Allahabad Bank (up 2.49%), Canara Bank (up 2.39%), Bank of India (up 2.38%), Vijaya Bank (up 2.24%), Dena Bank (up 2.22%), Andhra Bank (up 2.18%), Punjab and Sind Bank (up 2.17%), United Bank of India (up 2.17%), Syndicate Bank (up 2%), Corporation Bank (up 1.67%), UCO Bank (up 1.62%), Central Bank of India (up 1.38%) and IDBI Bank (up 0.61%), edged higher.
The BSE Bankex was up 1.82% at 23,336.27. It outperformed the Sensex, which was up 0.91% at 29,864.46.
The Reserve Bank of India (RBI) reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.75% to 7.5% with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 6.5%, and the marginal standing facility (MSF) rate and the Bank Rate to 8.5% with immediate effect.
RBI kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL).
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 and it will continue with daily variable rate repos and reverse repos to smooth liquidity.
RBI said in a statement that softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6% in the second half. The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative. Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for RBI to be pre-emptive in its policy action to utilise available space for monetary accommodation.
RBI added that the need to act outside the policy review cycle was prompted by two factors. First, while the next bi-monthly policy statement will be issued on 7 April 2015 the still weak state of certain sectors of the economy as well as the global trend towards easing suggests that any policy action should be anticipatory once sufficient data support the policy stance. Second, with the release of the agreement on the monetary policy framework, it is appropriate for the Reserve Bank to offer guidance on how it will implement the mandate.
Going forward, the RBI will seek to bring the inflation rate to the mid-point of the band of 4 +/- 2% provided for in the agreement, i.e., to 4% by the end of a two year period starting fiscal year 2016-17, the statement said.
The guidance on policy action given in the fifth-bi-monthly monetary policy statement of December 2014 is largely unchanged. Further monetary actions will be conditioned by incoming data, especially on the easing of supply constraints, improved availability of key inputs such as power, land, minerals and infrastructure, continuing progress on high-quality fiscal consolidation, the pass through of past rate cuts into lending rates, the monsoon outturn and developments in the international environment, RBI added.
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