Wednesday, 25 January 2012

News Hour- Banking stocks shine after CRR cut by RBI

NEW DELHI: Banking stocks rallied on Tuesday after the Reserve Bank of India (RBI) cut the cash reserve ratio for banks by 50 basis points to 5.50%, a move that eases tight liquidity in the banking system. 

The cash reserve ratio, the proportion of deposits that banks have to hold with the RBI, is a popular instrument to inject cash into the system. It now stands at 5.5%. 

Banks are borrowing more than Rs 1.2 lakh crore from the RBI, which is double of what the central bank has said it is comfortable with. 

"The move was expected as the central bank had to release some liquidity in the market to reduce banks' reliance on overnight funding from the RBI. It's a little premature to look at interest rate cut by the central bank," said Deepak Parekh, chairman, HDFC Bank

Based on technical parameters Bank Nifty could see levels up to 10,025 in the near term and SBI will be the major contributor to the bank Nifty as the largest public sector bank has already crossed its highest levels of Rs 1990 seen in October 2011. The rise in Bank Nifty will be followed by ICICI Bank and Axis Bank," said Rakesh Gandhi, Sr Technical Analyst at LKP Securities Ltd. 

"Maruti Suzuki India Ltd and Tata Motors also look attractive at current levels in the auto space," added Rakesh. 

The BSE Banking index is the largest gainer among the sectoral indices and is up over 200 points or 2.5%, compared with less than 1.3% gain in the benchmark index Sensex. 

Among the individual stocks, Bank of India is the largest gainer in the BSE Banking index, up over 6% followed by Bank of Baroda (up 5.6%), Canara Bank (up 4.9%), IDBI Bank (up 3.5), State Bank of India (up 3.2%) and ICICI Bank (up 2.9%) at 12:15 p.m. 


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