High-weightage financials and private banks gained ground on Monday, pushing the Bank Nifty index to a record high of 57,049.50, crossing the 57,000 mark for the first time, as investors cheered the Reserve Bank of India's shift to a neutral policy stance after delivering a surprise outsized rate cut, aimed at reviving credit growth and supporting bank margins.
The Nifty Bank index rose 0.8%, led by gains in Kotak Mahindra Bank, IDFC First Bank, Axis Bank, AU Small Finance Bank, Canara Bank and Punjab National Bank, which advanced between 1% and 2.2%. The Nifty Private Bank index gained over 1%, with shares of RBL Bank, HDFC Bank and YES Bank rising between 1% and 3.2%.
The rally came after the RBI on Friday cut the benchmark repo rate by 50 basis points, double the widely expected 25 bps cut, and slashed the cash reserve ratio (CRR) for banks by 100 bps. The central bank also shifted its policy stance to neutral, signalling a pause in further aggressive easing.
Wider market boosted by global cues, trade optimism
The broader market also opened firm on Monday, buoyed by strong U.S. jobs data and signs of progress in U.S.-India trade talks.
As of 9:15 a.m. IST, the Nifty 50 was up 0.63% at 25,160.1, while the BSE Sensex gained 0.47% to 82,574.55. All 13 major sectors advanced, with mid-cap and small-cap indices climbing 0.7% each.
Trade talks between Indian and U.S. officials are reportedly progressing, with both sides aiming to finalise an interim deal before the July 9 deadline by resolving tariff issues in agriculture and automobiles, Reuters reported, citing Indian government sources.
“The CRR cut is expected to provide some support to margins,” brokerage Nomura said following the central bank's policy announcement. “Our calculations suggest that it could improve NIMs for our covered banks by 3–12bp, RoA by 2–9bp and EPS by 2–8%.”
According to the brokerage, the RBI’s measures, including a cumulative CRR cut of 150 bps since December 2024 and a 100 bps reduction in the repo rate since February 2025, are aimed at injecting durable liquidity and reviving credit growth, which had slowed to 9.8% year-on-year as of May 2025.
“System liquidity remains at a surplus of INR3tn as of 5-Jun-25 (vs a deficit of INR2.2tn as at 14-Mar-25), led by the RBI’s sustained measures to infuse liquidity into the system,” Nomura said.
The staggered CRR cut will be implemented in four tranches starting September 6, 2025, releasing approximately Rs 2.5 trillion in liquidity. The potential benefit is expected to be skewed in favour of private sector banks, which have more headroom to lower CRR compared to public sector peers.
Outlook positive for select banks
Nomura sees mid-sized lenders such as AU Small Finance Bank, IndusInd Bank, and Federal Bank, along with deposit-constrained larger banks like Axis Bank and HDFC Bank, as key beneficiaries.
“We expect the benefit to be higher for our covered mid-sized banks (IIB, AUBANK and FB) and deposit-growth constrained large banks (such as AXSB and HDFCB),” the brokerage said.
Also read: Raamdeo Agrawal reveals his simple 2-step formula for finding multibagger stocks
While the RBI’s neutral stance may limit further rate cuts, analysts believe the current measures provide a sufficient cushion to bank earnings, especially if loan growth picks up in the coming quarters.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
The Nifty Bank index rose 0.8%, led by gains in Kotak Mahindra Bank, IDFC First Bank, Axis Bank, AU Small Finance Bank, Canara Bank and Punjab National Bank, which advanced between 1% and 2.2%. The Nifty Private Bank index gained over 1%, with shares of RBL Bank, HDFC Bank and YES Bank rising between 1% and 3.2%.
The rally came after the RBI on Friday cut the benchmark repo rate by 50 basis points, double the widely expected 25 bps cut, and slashed the cash reserve ratio (CRR) for banks by 100 bps. The central bank also shifted its policy stance to neutral, signalling a pause in further aggressive easing.
Wider market boosted by global cues, trade optimism
The broader market also opened firm on Monday, buoyed by strong U.S. jobs data and signs of progress in U.S.-India trade talks.
As of 9:15 a.m. IST, the Nifty 50 was up 0.63% at 25,160.1, while the BSE Sensex gained 0.47% to 82,574.55. All 13 major sectors advanced, with mid-cap and small-cap indices climbing 0.7% each.
Trade talks between Indian and U.S. officials are reportedly progressing, with both sides aiming to finalise an interim deal before the July 9 deadline by resolving tariff issues in agriculture and automobiles, Reuters reported, citing Indian government sources.
“The CRR cut is expected to provide some support to margins,” brokerage Nomura said following the central bank's policy announcement. “Our calculations suggest that it could improve NIMs for our covered banks by 3–12bp, RoA by 2–9bp and EPS by 2–8%.”
According to the brokerage, the RBI’s measures, including a cumulative CRR cut of 150 bps since December 2024 and a 100 bps reduction in the repo rate since February 2025, are aimed at injecting durable liquidity and reviving credit growth, which had slowed to 9.8% year-on-year as of May 2025.
“System liquidity remains at a surplus of INR3tn as of 5-Jun-25 (vs a deficit of INR2.2tn as at 14-Mar-25), led by the RBI’s sustained measures to infuse liquidity into the system,” Nomura said.
The staggered CRR cut will be implemented in four tranches starting September 6, 2025, releasing approximately Rs 2.5 trillion in liquidity. The potential benefit is expected to be skewed in favour of private sector banks, which have more headroom to lower CRR compared to public sector peers.
Outlook positive for select banks
Nomura sees mid-sized lenders such as AU Small Finance Bank, IndusInd Bank, and Federal Bank, along with deposit-constrained larger banks like Axis Bank and HDFC Bank, as key beneficiaries.
“We expect the benefit to be higher for our covered mid-sized banks (IIB, AUBANK and FB) and deposit-growth constrained large banks (such as AXSB and HDFCB),” the brokerage said.
Also read: Raamdeo Agrawal reveals his simple 2-step formula for finding multibagger stocks
While the RBI’s neutral stance may limit further rate cuts, analysts believe the current measures provide a sufficient cushion to bank earnings, especially if loan growth picks up in the coming quarters.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
