Banks extend recent slide on RBI's status quo on CRR

IndusInd Bank (down 5.75%), Union Bank of India (down 5.12%), Axis Bank (down 4.08%), Bank of India (down 3.39%), Kotak Mahindra Bank (down 3.06%), Bank of Baroda (down 3.02%), Canara Bank (down 2.91%), State Bank of India (down 2.49%), IDBI Bank (down 2.46%), Yes Bank (down 2.31%), Punjab National Bank (down 1.22%), Federal Bank (down 1.20%) and ICICI Bank (down 0.81%), edged lower. However, HDFC Bank was up 1.70% at 412.95.

The BSE Bankex was down 1.26% at 9,015.79. It underperformed the Sensex, which was down 0.54% at 15,297.01.

The Bankex has fallen 14.56% in the preceding nine sessions from a recent high of 10,552.51 on 7 December 2011. The Bankex had underperformed the market over the past one month until 19 December 2011, falling 10.14% compared with the Sensex's 6.06% decline. The index had also underperformed the market in past one quarter, falling 16.98% as against 8.16% fall in the Sensex.

At its mid-quarterly monetary policy review meet on Friday, 16 December 2011, the Reserve Bank of India (RBI) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. The central bank also refrained from cutting the cash reserve ratio (CRR) despite tight liquidity in the system. The repo rate was left steady at 8.5% after increasing it 13 times since March 2010. The bank rate also remains static at 6%. The central bank kept its end-March 2012 inflation forecast unchanged at 7%.

While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI said in a statement. The guidance given in the second quarter review of the monetary policy was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated, RBI said. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

However, it must be emphasised that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces, the central bank said in statement. Also, the rupee remains under stress, RBI said. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

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