Bank stocks recover

Written by Chirag Madia | Mumbai | Updated: Jan 30 2010, 07:45am hrs
Bank stocks, which fell sharply as news of the CRR hike broke, rebounded sharply with RBI leaving key policy rates unchanged and upping the GDP growth target for the current year to 7.5% from 6%.

ICICI Bank, which initially fell by over 2%, ended with a 5% gain at Rs 830.40. The BSE Bankex, which touched a low of 9,256.62 intra-day, bounced back to 9,654.09, gaining 3%. Of the18 stocks in the Bankex, 15 closed with smart gains. SBI ended the day at Rs 2,058, gaining 2.72%.

The CRR hike means that banks will have to leave an additional share of their deposits with the central bank without earning anything on that money. According to Motilal Oswal director-research Rajat Rajgarhia, the hit to their net interest margins could be very small, somewhere in the region of 3-5 bps.

Also, with abundant liquidity remaining in the system, banks bond portfolios are safe. Birla Sun Life Mutual Fund CEO A Balasubramanian said, Only if government borrowings increase sharply will portfolios be hit.

On Friday, RBI lowered the credit growth target for 2009-10 to 16% from 18%.