The Reserve Bank of India kept the repo rate unchanged at 5.15 per cent in its last policy review of the financial year 2019-20 (FY20). The MPC maintained the ‘accommodative’ stance, citing the lingering growth concerns and ensuring inflation remains within target.
The central bank also announced that the cash reserve ratio (CRR) will fall for every incremental loan given and CRR leeway on new consumer loans will be applicable till July 31.
Incentivising bank credit to specific sectors to support impulses of growth, RBI said that scheduled commercial banks will be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) for maintenance of CRR.
This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020.
“Along expected lines, MPC unanimously decided to maintain status quo on the policy rate but remain accommodative, as long as necessary, to revive growth. Reduced CRR requirement for incremental retail loans was a positive step,” said Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities.
“With inflation expected to remain elevated in the coming months, we see a long pause on Repo rates. However, we expect the RBI to continue to act with other monetary tools like OMOs and Operation Twist. RBI and government will likely take steps to improve transmission of rates in the economy,” Ambani said.
Following the announcements, Nifty Bank, Nifty Finance Services, Nifty PSU Bank, Nifty Private Bank and Nifty Realty indices recovered up to 2 per cent from their respective intra-day lows. At 12:35 PM, all these indices were up nearly 1 per cent each, as compared to 0.47 per cent rise in the benchmark Nifty 50 index.
Nifty PSU Bank, the top gainer among sectoral indices, was up 2.3 per cent on the NSE. State Bank of India (SBI), Bank of Baroda, Canara Bank, Uco Bank, Punjab National Bank and Bank of India were up more than 2 per cent.
Among individual stocks, Indiabulls Housing Finance, Shriram Transport Finance, LIC Housing Finance, L&T Finance Holdings, RBL Bank and PNB Housing Finance were up in the range of 4 per cent to 9 per cent on the NSE.