The shares of public sector banks strongly surged on June 9, pushing the Nifty PSU Bank index up over 1.5 percent to hover around 7,210. The sharp rally in the share prices comes after RBI announced the outcome of its Monetary Policy Committee's (MPC) meeting on June 6.
RBI Governor Sanjay Malhotra on June 6 announced that the MPC has decided to slash the central bank's policy repo rate by 50 basis points, higher than the 25-bps estimated by analysts. Additionally, he also announced that the central bank is cutting cash reserve ratio (CRR) by 100 basis points (bps) in four tranches of 25 bps each, which will likely inject Rs 2.5 lakh crore into the banking system.
Bank of India shares jumped nearly 4 percent to trade at Rs 129 apiece, while those of Bank of Maharashtra gained over 3 percent to hover around Rs 57 apiece. Indian Bank and Indian Overseas Bank shares were up over 2 percent each, while those of Punjab National Bank (PNB), Canara Bank, Punjab & Sind Bank, Central Bank and Union Bank of India were up over 1 percent each.
Bank of Baroda, State Bank of India (SBI) and UCO Bank shares were meanwhile trading in the green with marginal gains.
Speaking at the press conference after the MPC decision, Governor Malhotra said there were two objectives behind the CRR cut. "The first objective of cutting CRR is to provide liquidity. The second objective is that the CRR cut will not only improve liquidity, but it will also reduce cost of funding for the banks," he said.
"Apart from providing liquidity, the 3 percent CRR will reduce [banks’] costs and improve their NIMs by at least 7 bps, as per our estimates," he said.
The shares of several private banks also made strong gains, with Kotak Mahindra Bank, Axis Bank and others gaining over 2 percent each.
"The significant 50-bps repo rate cut to 5.50%, coupled with a substantial yet staggered 100-bps CRR reduction to 3.00%, is a well-calibrated decision that will infuse ₹2.5 trillion into the system. With a 100-bps repo rate cut in 2025 so far, this marks the sharpest easing cycle since the pandemic, aimed at proactively anchoring growth. These steps will ease liquidity, reduce funding costs, and boost borrower confidence. With rural demand strong and signs of investment revival, CSFB is well-placed to expand quality lending in its core market in semi-urban and rural areas. Lower pressure on deposit mobilization will help protect margins, reinforcing our commitment to empowering customers and continue our growth journey with poise and vigour," said Sarvjit Singh Samra, MD & CEO, Capital Small Finance Bank.
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