Banking shares are under pressure after the Reserve Bank of India (RBI) kept repo rate and cash reserve ratio (CRR) unchanged in its mid-quarter monetary policy review today.
State Bank of India, ICICI Bank, Union Bank of India and Canara Bank are trading lower by more than 2% each on the Bombay Stock Exchange.
The banking index Bankex, the largest loser among sectoral indices, is down almost 2% compared to less than 0.50% fall in benchmark Sensex at 1105 hours.
“On the basis of the current macroeconomic assessment, it has been decided to keep the CRR of scheduled banks unchanged at 4.25% their net demand and time liabilities (NDTL) and keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0%,” RBI said in a release.
CRR is the proportion of total deposits a bank has to keep with RBI as cash. Most of the analyst expected the central bank will cut the CRR by 25 bps points.
“Overall, recent inflation patterns and projections provide a basis for reinforcing our October guidance about policy easing in the fourth quarter. However, risks to inflation remain and accordingly, even as the policy emphasis shifts towards growth, the policy stance will remain sensitive to these risks,” the central bank said.
Meanwhile, BofA Merrill Lynch expects the RBI to resume cutting rates only from January – 75 bps till July - once inflation peaks off to 7% levels in the March quarter. India is the only BRIC (Brazil, Russia, India and China) where lending rates are almost at their 2008 peak.
