Banking stocks were in focus on Friday after RBI slashed the cash reserve ratio (CRR) by 50bps or 4 per cent. The Central Bank has kept the repo rate unchanged at 6.5 per cent and maintained its neutral stance.
As a market sentiment, Nifty PSU Bank index gained nearly 2 per cent on Friday, hitting intraday high of 7,248.25 from the previous close of 7,125.55. The index closed at 7,155.25. 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 trade in green among Nifty PSU Bank stocks, while PSB and Indian Bank dipped 1 per cent.
Axis Bank shares gained 1.50 per cent to close at ₹1,183.90.
Liquidity condition to improve
Naveen Kulkarni, Chief Investment Officer, Axis Securities Portfolio Management Services, said, “The CRR cut of 50bps in 2 tranches to 4 per cent would help improve the liquidity conditions while supporting growth. We believe this would lend slight support to NIMs (net interest margins) for banks.
“The latest data shows convergence of credit and deposit growth rates, mainly owing to slowdown in credit growth. Asset quality challenges especially amongst banks with higher exposure to the unsecured segments were visible in the previous quarters and we expect stress to persist in H2, thereby keeping credit costs higher in H2,” Kulkarni added.
Axis Securities PMS continued to prefer the larger banks with HDFC Bank, ICICI Bank, SBI and Bank of Baroda as its top picks.
Impact on margins to materialise in FY26
With the expectation of the first rate cut being pushed to the February 2025 policy meeting (due to weak GDP print and higher inflation), Motilal Oswal anticipates that the full impact on margins will materialise in FY26 as the loan yields reprice downward.
Motilal Oswal report mentioned that the public sector banks (PSBs) having MCLR-heavy books are less vulnerable to rate cuts. Private banks with high repo-linked books — Kotak at 60 per cent and Axis Bank at 57 per cent— are likely to witness a greater impact on their lending yields.
The brokerage added that Asset Liability Management (ALM) positioning will play a key role in assessing the net interest margin (NIM) impact. Banks with a higher proportion of fixed-rate loans and a lower duration of liabilities are expected to report more resilient NIM performance over FY26, it said.
For PSUs, Motilal Oswal has raised FY25 projections by 1.5 per cent observing that the earnings momentum of those banks remains strong. It expects private bank earnings to grow at 16 per cent/18 per cent y-o-y over FY26/27E respectively, however, sees downside risk to this growth in case of rate cuts.
ICICI, HDFC Bank, SBI, Federal Bank, and AU Small Finance Bank are the top picks of Motilal Oswal.
