Banking stocks rally after lenders cut deposit and savings rates; IndusInd Bank, HDFC Bank jump up to 7%

Banking shares galloped in trade on April 15, after private and public lenders trimmed their interest rate on fixed deposits and savings accounts, following the Reserve Bank of India's (RBI) Monetary Policy Committee's decision to trim the benchmark interest rate.

The RBI MPC decided to cut the repo rate by 25 basis points (bps) on April 9, marking the second consecutive rate cut, in roughly five years. The repo rate is the interest rate at which the central bank lends to commercial banks in India. This rate influences the interest rates on different types of loans offered to bank customers, thereby regulating cash flow in the market.

The Bank Nifty index, a key gauge to measure the sentiment in banking stocks, jumped 2.7 percent to settle at 52,379.50.

All the index constituents traded with gains, while IndusInd Bank led the pack, soaring nearly seven percent to quote Rs 735.50 at close. Axis Bank, AU Small Finance Bank, and IDFC First Bank following, gaining between three and four percent, respectively.

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State Bank of India trimmed its External Benchmark Based Lending Rate (EBLR) to 8.65 percent, lower by 25 basis points from 8.9 percent earlier, with the revision taking effect from today.

HDFC Bank has decided to reduce its savings account interest rate from 3 percent to 2.75 percent with effect from April 12 for deposits of up to Rs 50 lakh. The private lender also trimmed its fixed deposit (FD) rates between 35 and 40 basis points.

Bank of India has reduced fixed deposit rates by 5 to 25 basis points in line with the monetary policy shift. YES Bank cut rates by 25 basis points on deposits maturing between 12 and 24 months. Canara Bank also lowered rates by up to 20 basis points on select tenures.

On the technical front, ICICI Securities noted that the banking index continue to display notable outperformance and despite declining almost one percent last week, it has largely remained above 50,000 levels amidst high intraday volatility.

"The primary support came from HDCF Bank, which cushioned against the losses seen in most of the other banks. Going ahead, we believe that positive bias in banking index should continue till it is holding itself above 50,000 levels in the coming sessions," added the brokerage.

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