Bank Nifty jumps 700 pts, Fin Nifty up 1.2% on RBI's lending, capital rules proposals

The Bank Nifty reclaimed 55,000 mark on October 1 after the Reserve Bank of India kept the interest rate unchanged at 5.5 percent for the second consecutive time and the lender also proposed a raft of changes for bank lending. The sharp rally was led by Kotak Mahindra Bank, ICICI Bank and HDFC Bank, rising up to 3 percent intraday.

At 12:05 pm on October 1, Bank Nifty was trading 700 points, or 1.3%, higher at 55,350.

While the Nifty Private Bank index rose 1.75%, the Nifty PSU Bank index saw profit booking as it was trading 1.1% lower.

Announcing the fourth bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to keep the short-term lending rate or repo rate unchanged at 5.5 percent with a neutral stance.

RBI has proposed to expand scope of capital market lending by banks to provide enabling framework to finance acquisitions. The central bank on October 1 proposed to withdraw a 2016 framework that limited bank lending to large corporations in a bid to reduce the risk of concentrated lending. This change will allow banks to raise lending to large corporations.

RBI also proposed greater flexibility to banks for opening and maintaining accounts of borrowers.

The RBI allowed unfettered bank lending against listed debt securities and raised the limit for lending against equity shares.

The cap on bank financing for IPOs will also be raised from to Rs 25 lakh from Rs 10 lakh per individual.

Nifty Financial services index also rose over 1.4 percent to trade at 26,396 on October 1 as the central bank lowered the risk weights for infrastructure loans by non-bank lenders, allowing greater credit flow to the ongoing build-out of roads and bridges across the country.

Shares of non-banking finance companies including HUDCO, IREDA, PFC and REC rose 3-5 percent on Wednesday after the Reserve Bank of India (RBI) announced regulatory changes to ease infrastructure financing. Governor Sanjay Malhotra, while unveiling the October monetary policy, said risk weights on NBFC lending to operational, high-quality infrastructure projects would be reduced, helping lower the cost of financing for the sector.

"Harmonisation of over 9,000 compliances, a level-playing field for banks for capital market exposure and corporate acquisition, along with a dovish tone keeping the room open for future rate cuts, is in sync with the government's push to stimulate the economy," Nilesh Shah, managing director at Kotak Mahindra Asset Management Company told Reuters.

“As expected, the RBI maintained the status quo. RBI is biased towards growth since inflation is within the target range and continues moving towards the midpoint. Also, the tariff uncertainties causing some headwinds to global trade are also cause of concern. In this scenario, RBI would like to see some stabilization of the INR and some clarity on global trade. It is primed for future rate cuts but will depend on how things pan out on the global trade deals and volumes and the INR," said Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital.

Capital rules

Giving banks a breather on capital, the RBI said the implementation of so-called expected credit loss rules, which mandate banks to set aside more funds for potential bad loans, will be effective on April 1, 2027.

While a draft framework on the rules had been published to bring Indian norms in line with global ones, an implementation date had not been announced. Banks will be given time till March 31, 2031 to fully implement that framework, RBI governor Malhotra said.

The central bank also proposed to make Basel 3 norms effective for banks from April 1, 2027.

The RBI will also issue draft rules for credit risk shortly. Under these, lower risk weights on certain segments are expected to ease capital requirements for small enterprises and residential real estate, including home loans.

With inputs from Reuters

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