The Nifty Bank index is trading with losses on Monday, October 12. The index has contributed to the Nifty downside today, having outperformed the benchmark index last week.
Barring AU Small Finance Bank and HDFC Bank, all other constituents are trading with losses on Monday. Losses are being led by Axis Bank, Yes Bank and State Bank of India, all of which are down 1% each, while the rest are down between 0.5% to 1%.
Why Are Banking Stocks Down Today?
As per the announcement made by the Reserve Bank of India on Saturday, the minimum daily cash reserve requirement for banks has been revised higher to 99% from 90% earlier, even as the overall Cash Reserve Ratio (CRR) is unchanged at 3%.
The changes will take effect from the fortnight that ends on October 31.
RBI has also announced an Open Market Operation (OMO) sale of ₹25,000 crore on October 13, days after draining over ₹1 lakh crore via OMOs in September.
Surplus liquidity in the system stood at ₹3.88 lakh crore as on Thursday, October 8.
These measures are aimed at managing surplus liquidity from FCNR (B) inflows, thereby bringing the weighted average call rate (WACR) closer to the policy repo rate.
This is the first time in over a decade that the RBI has raised the minimum daily CRR maintenance requirement to 99%. The last instance of this happening was back in July 2013, which was then relaxed to 95% by September and then to 90% by 2016.
What Do The RBI Measures Mean For Banks?
The measures mean that banks will now have to keep more cash with the RBI on a daily basis, allowing them less flexibility to let their daily reserve balances fall.
This move could also result in potentially higher short-term funding costs.
Impact of this move will vary across banks as those lenders with a stronger deposit franchise and surplus liquidity will be better placed to navigate these steps announced by the central bank.
The Nifty Bank is now down 250 points, with shares of PNB, Yes Bank and SBI trading with losses of over 1% each, while Axis Bank and Canara Bank’s shares are also down up to 1%.