REC, RBL, PNB: Bank, NBFC stocks rally as RBI to inject Rs 1.9trn liquidity

The Nifty PSU Bank index rose 1.46%, or 86.3 points to hit an intraday high of 5,976.75, while the Nifty Bank index increased 0.72%, adding 349.15 points to hit an intraday high of 48,839.10

Banks, NBFCs stocks surge: Banking stocks, including those of both private and public sector banks, as well as non-banking financial companies (NBFCs), were in demand on Thursday, March 6, 2025, following the Reserve Bank of India (RBI)'s announcement of new measures aimed at injecting nearly Rs 1.9 trillion in liquidity into the banking system.

 

The Nifty PSU Bank index rose 1.46 per cent, or 86.3 points to hit an intraday high of 5,976.75, while the Nifty Bank index increased 0.72 per cent, adding 349.15 points to hit an intraday high of 48,839.10.

 

Among the individual stocks in the Nifty PSU Bank index, Central Bank saw a gain of 2.85 per cent, followed by Punjab National Bank (PNB) at 2.51 per cent, Punjab and Sind Bank at 2.71 per cent, Bank of Maharashtra at 2.35 per cent, and UCO Bank at 2.82 per cent. Other banks like Bank of India, Union Bank, Indian Overseas Bank, and Canara Bank rose between 0.7 per cent and 1.3 per cent, while SBI and Indian Bank experienced minor losses, falling by up to 0.3 per cent.

 

 

In the Nifty Bank index, Canara Bank rose 2.05 per cent, AU Small Finance Bank (SFB) gained 1.99 per cent, and Bank of Baroda climbed 1.69 per cent. Other banks like IDFC First Bank, Federal Bank, ICICI Bank, and HDFC Bank saw gains ranging from 0.1 per cent to 1 per cent.

 

Similarly, the Nifty Private Bank index saw a gain of up to 0.67 per cent, or 163.7 points, to an intraday high of 24,401.85. The Nifty Financial Services index rose 0.64 per cent, or 148.05 points, to hit an intraday high of 23,198.65.

 

Within the Nifty Private Bank index, RBL Bank led the charge with a 3 per cent rise, followed by City Union Bank, which saw a 2 per cent increase. Other banks like Bandhan Bank, Axis Bank, Federal Bank, and IDFC First Bank were up in the range of 0.5 per cent to 1 per cent.

 

Meanwhile, NBFCs also saw a strong performance, with stocks such as REC, Shriram Finance, LIC Housing Finance, PFC, ICICI General Insurance, Cholamandalam Investement, MCX, and Muthoot Finance rising up to 4 per cent.

 

RBI’s liquidity infusion plan

 

The RBI has outlined plans to inject liquidity into the banking system through open market operations (OMO) to purchase government securities worth Rs 1 trillion in two tranches of Rs 50,000 crore each, scheduled for March 12 and March 18. 

 

Additionally, the central bank will conduct a USD/INR buy-sell swap auction worth $10 billion with a 36-month tenor on March 24.

 

For the past 11 consecutive weeks, the net liquidity in the banking system had been in deficit, although the latest data indicated the deficit narrowing to Rs 20,000 crore as of Tuesday. READ MORE

 

Earlier this year, the RBI announced OMO auctions to purchase government securities worth Rs 60,000 crore in three tranches of Rs 20,000 crore each and conducted USD/INR buy-sell swaps worth $5 billion and $10 billion in January and February, respectively.

 

Brokerage view

 

In response to the Reserve Bank of India's (RBI) liquidity infusion measures, analysts at Nomura stated that the central bank has been "bold and timely" in announcing two new initiatives. 

 

According to Nomura's note, "The injection across these two instruments of approximately Rs 1.87 trillion is more than we expected." 

 

They also highlighted the "positive" timing of the announcement, noting that "from our conversations with market participants, there were limited expectations for the RBI to announce new measures in March," given the proximity to year-end, the previously announced measures, and the impending RBI dividend.

 

Nomura analysts further stressed that the RBI is addressing the liquidity situation in a proactive manner. They pointed out that the current system deficit stands at just Rs 0.3 trillion, the smallest since early December, due to month-end spending and the earlier buy/sell auction. 

 

"This suggests that the RBI could want the system to move into a surplus rather than remain in deficit," they added. This raises the question of whether the MIBOR/WACR (Mumbai Interbank Offered Rate/Weighted Average Call Rate) can sustain below the repo rate.

 

"We believe we are moving in this direction, and the market should start pricing the MIBOR to trade with a small premium (5bp) over the repo rate before converging and/or falling below it after the RBI dividend in May," the analysts said.

 

Regarding the liquidity outlook, Nomura indicated that the RBI's measures should help reduce the deficit and potentially move the system into a small surplus. 

 

However, they cautioned that "we need to monitor the RBI’s short forward book, which currently stands at $77.5 billion (net basis as of 31 January 2025), with a major portion in the 0-3 month tenor." They warned that this could lead to a major drain on liquidity if it is rolled off.