PSU banks edge higher, private sector banks mixed after RBI keeps key rates unchanged

Public sector banks rose and private sector banks were mixed at 11:17 IST on BSE after the Reserve Bank of India kept keep policy repo rate unchanged at 6.5% in its latest monetary policy meeting held today, 9 August 2016.

Among public sector banks, Indian Bank (up 1.17%), Union Bank of India (up 1.13%), Bank of India (up 1%), State Bank of India (up 0.62%), Bank of Baroda (up 0.41%), Punjab National Bank (up 0.28%) and IDBI Bank (up 0.22%) edged higher. Corporation Bank (down 1.2%) and UCO Bank (down 0.12%) edged lower.

Among private sector banks, ICICI Bank (up 0.82%), Axis Bank (up 0.5%) and IndusInd Bank (up 0.11%) edged higher. HDFC Bank (down 0.65%), Kotak Mahindra Bank (down 0.45%) and Yes Bank (down 0.28%) declined.

Meanwhile, the S&P BSE Sensex was down 51.77 points or 0.18% at 28,130.80.

The Reserve Bank of India (RBI) has kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL). The central bank said it continues to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from 1% of NDTL to a position closer to neutrality. Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) will remain unchanged at 6%, and the marginal standing facility (MSF) rate and the bank rate at 7%.

The central bank said that the stance of monetary policy remains accommodative and will continue to emphasise the adequate provision of liquidity. Easy liquidity conditions are already prompting banks to modestly transmit past policy rate cuts through their Marginal Cost of Funds based Lending Rates (MCLRs) and pro-active liquidity management should facilitate more pass-through, the central bank said.

Risks to the inflation target of 5% for March 2017 continue to be on the upside, the central bank said.

Looking ahead, the momentum of growth is expected to be quickened by the normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to consumption spending that can be expected from the disbursement of pay, pension and arrears following the implementation of the seventh central pay commission's award, the central bank said. The passage of the Goods and Services Tax (GST) Bill augurs well for the growing political consensus for economic reforms, it added.

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