Banking shares dip post RBI policy, Bankex down 325 points

Oriental Bank of Commerce, Union Bank of India, Allahabad Bank, Uco Bank and Dena Bank are down in the range of 2-4% on BSE.

Banking shares are under pressure with frontline banking stocks trading lower by up to 4% in noon deals post the Reserve Bank of India (RBI) mid-quarter monetary policy review.

Oriental Bank of Commerce, Union Bank of India, Allahabad Bank, Uco Bank, Dena Bank, Vijaya Bank, Punjab National Bank and Central Bank of India are down in the range of 2-4% on the Bombay Stock Exchange (BSE) at 1122 hours.

The banking share index Bankex, the largest loser among sectoral indices, is down 2.4% or 325 points at 13,151 compared to 1.4% or 278 points fall in benchmark Sensex.

In its mid-quarter review said that the headroom for further monetary easing remains quite limited.

RBI asked government to keep working on the fiscal consolidation and said it expects FY14 headline inflation to be rangebound at current levels.

“Notwithstanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels over 2013-14 in view of sectoral demand-supply imbalances, the ongoing corrections in administered prices and their second-round effects,” the RBI said in its guidance.

In addition, elevated food prices, including pressures stemming from minimum support prices (MSP) increases, and the wedge between wholesale and retail inflation have adverse implications for inflation expectations. 

Risks on account of the current account deficit (CAD) remain significant notwithstanding likely improvement in Q4 over an expected sharp deterioration in Q3 of 2012-13. Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited, it added.

Meanwhile, the Central bank cuts its key policy rate by 25 basis points to 7.5%. The cash reserve ratio or CRR, the amount of funds banks have to keep with RBI, has been kept unchanged.