Bank stocks were in focus on Friday after RBI cut the cash reserve ratio (CRR) by 50 basis points or 4 percent. The Central Bank has kept the repo rate unchanged at 6.5 percent and maintained its neutral position.
As a market sentiment, the Nifty PSU Bank index rose nearly 2 percent on Friday to touch an intraday high of 7,248.25 from the previous close of 7,125.55. The index closed at 7,155.25. The Nifty Bank and Nifty Private Bank indices closed at 53,509.50 and 25,956.35 respectively.
Bank of Baroda, Canara Bank, PNB, Union Bank, UCO Bank and IOB ended the day’s trading in the green among Nifty PSU Bank stocks, while PSB and Indian Bank fell 1 percent.
Shares of Axis Bank rose 1.50 per cent to close at ₹1,183.90.
Liquidity condition improves
Naveen Kulkarni, Chief Investment Officer, Axis Securities Portfolio Management Services, said, “The CRR reduction from 50 basis points in two tranches to 4 percent would help improve liquidity conditions while supporting growth. We believe this would provide some support to NIMs (net interest margins) for banks.
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“The latest data show a convergence of credit and deposit growth, mainly due to the slowdown in credit growth. Asset quality issues, especially at banks with higher exposure to the unsecured segments, were evident in previous quarters and we expect stress to persist in the second half, keeping credit costs higher in the second half.” , Kulkarni said.
Axis Securities PMS continued to favor the bigger banks, with HDFC Bank, ICICI Bank, SBI and Bank of Baroda among the top picks.
Impact on margins will materialize in FY26
With the expectation of the first rate cut pushed to the February 2025 policy meeting (due to weak GDP print and higher inflation), Motilal Oswal expects the full impact on margins to materialize in FY26 as loan rates goes down.
The Motilal Oswal report said that public sector banks (PSBs) with MCLR-heavy books are less vulnerable to interest rate cuts. Private banks with high repo-linked books — Kotak at 60 percent and Axis Bank at 57 percent — are likely to witness a greater impact on their loan returns.
The brokerage added that Asset Liability Management (ALM) positioning will play a key role in assessing the impact of Net Interest Margin (NIM). Banks with a higher share of fixed-rate loans and shorter obligation maturities are expected to report more resilient NIM performance over FY26, the report said.
For PSUs, Motilal Oswal has increased FY25 projections by 1.5 percent, noting that the earnings momentum of these banks remains strong. It expects private banks’ profits to grow by 16 percent/18 percent YoY respectively in FY26/27E, but sees a downside risk to this growth in the event of rate cuts.
ICICI, HDFC Bank, SBI, Federal Bank and AU Small Finance Bank are Motilal Oswal’s top picks.
