RBI policy: Bank Nifty gains; SBI, ICICI Bank, Axis up 1-2%

Moneycontrol Bureau

Banks stocks bounced back on Tuesday after the Reserve Bank of India matched economists' expectations by raising repo rate by 25 basis points (bps) and reducing marginal standing facility (MSF) rate by 25 basis points.

The central bank increased repo rate, at which the banks' borrow money from RBI, from 7.5 percent to 7.75 percent. It has slashed MSF rate, at which banks borrow funds overnight from it, from 9 percent to 8.75 percent with immediate effect.

Country's top lenders State Bank of India and ICICI Bank gained 1 percent and 2 percent, respectively. Axis Bank and Bank of Baroda rallied more than 2.5 percent, while the Bank Nifty climbed 146 points to 10919.

Meanwhile, RBI kept cash reserve ratio (CRR), the amount of funds that banks have to keep with the central bank, unchanged at 4 percent.

According to a CNBC-TV18 poll, economists had expected RBI governor Raghuram Rajan to hike repo rate by 25 basis points and leave CRR unchanged. Around 90 percent of economists polled also believed that RBI will roll back the MSF to its earlier rate of 8.75 percent.

In the second quarter monetary policy review, RBI has increased the liquidity provided through term repos of 7-day and 14-day tenor from 25 basis points of net demand and time liabilities (NDTL) of the banking system to 50 basis points with immediate effect.

"We have calibrated liquidity management to the system’s requirements. We are providing liquidity through overnight LAF repos, through export credit refinance and through 7-day and 14-day term repos. We have also given greater flexibility in managing reserve requirements," Rajan said in its statement.