Five-Star, RBL, Bandhan Bank rally up to 18% in 2 days post RBI policy

Capri Global, Five-Star Business, IIFL Finance, Bandhan Bank, Fedbank Financial, ESAF SFB and RBL Bank from the BSE Financial Services index have rallied between 5% and 14% in intra-day trade today.

Shares of financials firms mainly mid and small-sized banking, non-banking finance companies (NBFCs), micro finance institutions (MFIs) and housing finance companies continued to trade higher for the second straight day, surging up to 14 per cent on the BSE in Monday’s intra-day trade amid heavy volumes. 

 

In the past two trading days, select stocks from these sectors have rallied by up to 18 per cent after the Reserve Bank of India (RBI) appointed monetary policy committee on Friday decided to cut the repo rate by 50 bps to 5.5 per cent vs. general expectations of 25 bps. 

 

Further, in a surprising move, the RBI also decided to cut the cash reserve ratio (CRR) by a massive 100 bps to 3.0 per cent of NDTL (Net demand and Time liabilities) in a staggered manner with equal cut of 25 bps being effective from fortnight beginning 6th September, 4th October, 1st November and 29th November.  Follow Stock Market Updates Today LIVE

 

 

Capri Global Capital, Five-Star Business Finance, IIFL Finance, Bandhan Bank, Fedbank Financial Services, ESAF Small Finance Bank, RBL Bank, Fusion Finance, Muthoot Microfin, Jana Small Finance Bank, Arman Financial Services, Utkarsh Small Finance Bank and Capital Small Finance Bank from the BSE Financial Services index rallied between 5 per cent and 14 per cent in intra-day trade today.

 

According to analysts at JM Financial Institutional Equities liquidity in the system is already in surplus of ₹3.0 trillion as on 5th June (~1.3 per cent of system deposits) and this CRR cut will inject additional primary liquidity to the tune of ₹2.5 trillion (~1.1 per cent of system deposits). With this surprise repo rate/ CRR cuts, RBI also changed its stance to “Neutral” from “Accommodative” highlighting limited scope to cut the rates further.

 

As per brokerage firm rough calculations, ~100bps of repo rate cuts should lead to ~20-40bps of net interest margins (NIMs) cuts for banks depending upon respective loan mix, funding mix and maturity profile of TDs. CRR cut of ~100bps should lead to ~7-8bps of positive impact on NIMs which should partially cushion this negative impact coming out of repo rate cuts. Hence, this CRR cut should cushion ~20 per cent-30 per cent of total negative impact on NIMs coming out of repo rate cuts, analysts said in a sector report.  ALSO READ | Muthoot Finance rallies 10% in 2 days, mcap crosses ₹1 trillion; here's why

 

For NBFC/ mid banks having higher share of fixed rate loans, positive impact on NIMs is contingent upon yield trajectory despite benefits on cost of funding. Due to loan mix shifting towards secured loan segments and pricing pressure in secured loans driven by elevated competition is leading to pressure on yield.

 

While banks may see near-term pressure on NIM due to mandatory 50 bps rate cuts on ~45 per cent of external benchmark-linked loans in the system, the reduction in CRR lowers the cost of funds and improves liquidity, offering offsetting support. Thus, margins are expected to bottom out in 1HFY26, amid repricing of term deposit rates and interest income from relaxation in CRR, ICICI Securities said in a note.

 

According to analysts at Elara Capital, the RBI MPC meet was bold, going all in for growth. The front-loading of the 50 bps cut helps the RBI to extract policy space to counter near-term uncertainty emanating from trade and tariffs. A 100 bps CRR cut may help the RBI to manage liquidity tightness that is likely to arise from a possible unwinding of the RBI’s short position in FX forward book of $52 billion. The lowering of CRR should also aid in transmission to lending rates. All in all, a bold move with a lot to look forward to.   ALSO READ | PNC Infratech shares rise 5% in trade after company bags ₹240-crore order

  Within banks, the brokerage firm sees early benefits accruing to mid-sized banks and to a few PSU banks with some time lag. Larger private banks may see front-ended impact given the higher proportion of External Benchmark based Lending Rate (EBLR).

 

While pressure in the MFI segment continues, the RBI has highlighted that both banks and NBFCs have actively recalibrated their business strategies and credit underwriting models to align with evolving market conditions. The MFI segment is expected to stabilize in the next few quarters.