Banking stocks continue to rally on RBI's pro-growth policy; NIFTY Bank hits fresh record high

Banking stocks extended their rally for the second day, with Nifty Bank hitting a fresh high on Monday, June 9, following the Reserve Bank's jumbo rate cut of 50 basis points on Friday.

This was the third consecutive reduction, and the Reserve Bank of India (RBI) unexpectedly reduced the cash reserve ratio for banks to provide a major liquidity fillip to support the economy amid geopolitical and tariff headwinds.

Investors’ sentiment was majorly boosted following the rate cut. On Monday, Nifty Bank hit a fresh high, trading at 57,023.60 levels. It had touched an intraday high of 57,049.50. Nifty PSU Bank and Nifty Private Bank were also trading higher by 1.8% and 1.18%, respectively.

Banking stocks were also trading higher after several banks had cut their MCLR rates following RBI's rate cut.

The sector was also outperforming the main equity benchmark indices on Monday.

The RBI's six-member monetary policy committee, headed by Governor Sanjay Malhotra and consisting of three external members, voted five to one to lower the benchmark repurchase or repo rate by 50 basis points to 5.5%. It also cut the cash reserve ratio by 100 basis points to 3%, adding ₹2.5 lakh crore to already surplus liquidity in the banking system.

With the latest reduction, RBI has now cut interest rates by a total of 100 basis points in 2025, starting with a quarter-point reduction in February—the first cut since May 2020—and another similar-sized cut in April.

The central bank, at the same time, changed its monetary policy stance to "neutral" from accommodative, with Malhotra saying further action will depend on incoming data.

The reduction in CRR means that the commercial banks would have to maintain a lower level of 3% in liquid cash form, with the RBI allowing them to have higher funds for lending. The last massive, similar CRR cut of 1% was done on March 27, 2020, when the RBI had also slashed the benchmark repo rate by 75 basis points in an off-policy decision to support amid the onslaught of the Covid-19 pandemic.

RBI, however, did not tinker with the Statutory Liquidity Ratio (SLR) and maintained it at 18%. The RBI has infused over ₹7 lakh crore into the banking system through OMO purchases in the last five months.

All the stocks on NIFTY PSU Bank were trading in green, with Bank of India taking the lead, gaining 3.88%. Bank of Maharashtra (3.42%), Indian Overseas Bank (2.45%), Canara Bank (2.29%) and Punjab National Bank (2.17%) were the other top contributors in the sector.

Central Bank of India (1.68%), UCO Bank (1.55%), Union Bank of India (1.48%), Bank of Baroda (1.05%) and State Bank of India (0.84%) were the other top gainers on the index.

On the Nifty Private Bank, except for ICICI Bank (1.27%), all the other stocks were rallying on Monday.

Bandhan Bank was the top gainer, jumping 6.8%, followed by RBL Bank (5.41%), Kotak Mahindra Bank (2.97%), Federal Bank (2.58%) and Axis Bank (2.29%).

IndusInd Bank (1.82%), YES Bank (1.06%), IDFC First Bank (1.01%) and HDFC Bank (0.01%) also contributed to the gauge.

The financial stocks were also trading on Monday, with Muthoot Finance jumping 3.37%. Shares of PFC (2.98%), REC (2.82%), Bajaj Finance (2.81%), Jio Financial Services (2.24%), SBI Card (1.69%), Cholamandalam Investment and Finance (1.54%) and Bajaj Finserv (1.11%) also witnessed significant gains during the intraday period.