Key Points
- The RBI cut the CRR by 50bps to 4%, giving banking stocks a lift.
- PSU Bank index gained almost 2%, closing at 7,155.25.
- Improved liquidity is expected, supporting bank growth.
- Private banks with more repo-linked loans may face bigger margin impacts.
- Motilal Oswal predicts the full margin impact by FY26, with a positive outlook for PSU banks.
- Top stock picks include HDFC Bank, ICICI Bank, SBI, and Bank of Baroda.
Looma News
On Friday, banking stocks saw strong gains after the Reserve Bank of India (RBI) cut the cash reserve ratio (CRR) by 50 basis points to 4%. The repo rate stayed at 6.5%, keeping the policy neutral. The Nifty PSU Bank index rose almost 2%, reaching an intraday high of 7,248.25 before closing at 7,155.25. The broader Nifty Bank and Nifty Private Bank indices also ended higher at 53,509.50 and 25,956.35, respectively. Among Nifty PSU Bank stocks, Bank of Baroda, Canara Bank, Punjab National Bank, Union Bank, UCO Bank, and Indian Overseas Bank saw gains, while PSB and Indian Bank dropped by 1%.
Naveen Kulkarni, Chief Investment Officer at Axis Securities Portfolio Management Services, said the CRR cut would improve liquidity, helping growth and possibly offering a slight boost to banks’ profit margins. He also mentioned that credit growth has slowed down, and banks with higher exposure to unsecured loans may continue facing challenges, leading to higher credit costs in the second half of the year. Axis Securities continues to favor larger banks like HDFC Bank, ICICI Bank, SBI, and Bank of Baroda.
Motilal Oswal predicts that the full impact of the CRR cut on margins won’t be felt until FY26, as loan yields adjust downward. The firm noted that public sector banks (PSBs), with their focus on MCLR-linked loans, are less vulnerable to rate cuts. On the other hand, private banks with more repo-linked loans, such as Kotak Bank and Axis Bank, are expected to feel more pressure. Motilal Oswal has raised its FY25 earnings forecast for PSU banks by 1.5%, pointing to strong earnings growth. For private banks, it expects a 16% to 18% year-on-year growth in FY26/27, but sees risks if further rate cuts happen. ICICI Bank, HDFC Bank, SBI, Federal Bank, and AU Small Finance Bank are among Motilal Oswal’s top stock picks.
