Bank Stocks Fall As Bank Rate, CRR Stay Intact

Mumbai/New Delhi, Nov 3: | Updated: Nov 4 2003, 05:30am hrs
Though the broad market hit new highs on Monday with the benchmark BSE Sensex crossing the crucial 5,000-mark, banking counters remained weak as a knee-jerk reaction to the mid-term review of the monetary and credit policy of the Reserve Bank of India (RBI). RBI, while maintaining its softer bias towards interest rates, left the Bank rate, repo rate and the cash reserve ratio (CRR) unchanged in its credit policy announced on Monday.

During intra-day trades, the State Bank of India (down 1.75 per cent to Rs 475.75), came off the days high of Rs 490.95 after RBI left the bank rate unchanged at six per cent, repo rate at 4.5 per cent and CRR at 4.5 per cent. Close to 30 lakh SBI shares were traded on BSE on the opening day of the week on Monday.

On Friday, Bank of Baroda had soared to its all-time high of Rs 196, while ICICI Bank, Federal Bank, State Bank of Bikaner and State Bank of Travancore had scaled to their one-year highs.

Among non-Sensex banking stocks, Bank of Baroda (down 6.46 per cent to Rs 178.75), Punjab National Bank (down 4.73 per cent to Rs 193.20), Federal Bank (down 4.14 per cent to Rs 173.70), Canara Bank (down 3.64 per cent to Rs 129.55), Corporation Bank (down 3.49 per cent to Rs 221.55) and Oriental Bank of Commerce (down 2.90 per cent to Rs 247.70), all ended lower on selling pressure after the credit policy.

As per dealers, the market was expecting some kind of a rate cut in the bank rate, repo rate and CRR. However, market experts unanimously feel that the repo rate and CRR are already at their lowest levels with ample liquidity in the system and hence there is no major cause of concern.

Milind Barve, managing director, HDFC Mutual Fund, said, The permission granted to mutual funds to issue and redeem units in Sebi-approved offshore funds and remit dividends payable overseas, will have a far-reaching impact on simplifying the launch and administration of such schemes.

He added, RBI has focussed on continuity. No cuts in interest rates, though against market expectations, underline the focus on continuity and providing stable and predictable policy environment. Further, it points to a bias towards soft and flexible interest rates.

Ambareesh Baliga, vice-president, Karvy Stock Broking Ltd, said, We were expecting a 25 basis-point cut in the bank rate. However, the possibility of it happening looked very thin. Over the last 4-5 years, the monetary policy has become more of a review than a policy change event. The major changes over the years have been announced in between the policies. We expect no change in key variables and are neutral on the banking sector.

Anil Chopra, CEO and director, Bajaj Capital, said: The RBI has stated that the soft bias would continue and hence we may see a rate cut, possibly later.

A banking analyst with Motilal Oswal Securities added, The bank stocks remained weak throughout the day as a knee-jerk reaction to the unchanged bank rates. However, there is nothing wrong with the fundamentals of the banking stocks and there is no reason why they will not bounce back in a short period of time. There might be some overhang though in the bank stocks as some of them are also available in the derivatives segment.

According to president of Association of NSE Members in India (Anmi) Rakesh K Jain, There were a lot of expectations in the market about a cut in interest rates which have not been met, which disappointed market players a lot. There may be a negative impact on the profitability of banks as their incomes from treasury operations for the quarter ended December 2003 may take a hit.

Mr Jain added that most of the correction in banking stocks has happened on Monday and while these stocks may perform in line with the industry, the feel-good factor will not be there.