Banking stocks, especially public sector banks including Syndicate Bank, Indian Bank, and State Bnak of India (SBI), added up to 6.2 per cent on the National Stock Exchange (NSE) on Friday after the Reserve Bank of India (RBI) decided to buy and sell bonds worth Rs 10,000 crore via open market operations.
In a statement on Thursday, the RBI said it will simultaneously buy and sell government bonds worth Rs 10,000 crore each on December 23, through Open Market Operations (OMOs). "On a review of the current liquidity and market situation and an assessment of the evolving financial conditions, the RBI has decided to buy government bonds maturing in 2029 and sell four securities aggregating Rs 10,000 crore which will mature in 2020," it said. READ STATEMENT HERE
With this, analysts believe, the RBI intends to lower yields on long-term bonds, and keep the liquidity at the system level intact. The move will allow the government to borrow at lower cost. On Friday, the 6.45 per cent 10-year government bomnd yield opened at 6.62 per cent, as against Thursday's close of 6.75 per cent.
At the bourses, shares of Syndicate Bank gained the most, up 6.2 per cent to Rs 30.55, followed by Indian Bank (4.6 per cent). Besides, shares of SBI, Union Bank of India, Oriental Bank of Commerce, Allahabad Bank, Canara Bank, Bank of Baroda, and Punjab Nartional Bank (PNB) gained between 1.7 per cent and 3.6 per cent.
At 10:08 AM, the Nifty PSB Index was the best performing index on NSE, up 2.33 per cent, as against a 0.21 per cent rise in the benchmark Nifty50. That apart, Nifty Bank index was up 0.45 per cent, while the Nifty Private Bank index was trading 0.18 per cent higher.
Among private banks, YES Bank gained 4 per cent in the intra-day deals, RBL Bank (1.6 per cent), and The Federal Bank (1 per cent). ICICI Bank hit a fresh 52-week high of Rs 548, up 1.4 per cent.
In the December monetary policy, the RBI's Monetary Policy Committee (MPC) maintained status quo and kept the repo rate unchaged at 5.15 per cent on concerns of rising inflation and lack of rate cut transimission. "Transmission of earlier policy rate changes had been full across various money market segments and private corporate bond yields. However, transmission to the government securities market had been partial," the MPC said in a statement.
The move had been suggested by some traders and strategists as a way to transmit more of the central bank’s rate reductions to businesses and individual borrowers. With investment and consumption both weak in India, policy makers are trying to spur credit and boost economic growth from a six-year low. READ REPORT HERE
In the media address, post the meeting, governor Shaktikanta Das told reporters that there was surplus liquidity in the financial system. Data show, liquidity in the banking system continued to be surplus in the week ended December 13, 2019. The estimated liquidity surplus in the banking system was over Rs 2.45 trillion on all the days of the week. The liquidity surplus has seen the RBI undertaking term (variable rate) reverse repo auctions in order to drain out liquidity from the banking system.