NIFTY Bank surges over 850 points, hits record high after RBI cuts CRR, repo rate

NIFTY Bank index, the measure of 12 banking shares on the National Stock Exchange, surged as much as 889 points or 1.59% to hit record high of 56,650.20 after the banking regulator Reserve Bank of India (RBI) provided a major boost to banks. RBI surprised investors and traders by announcing a larger than expected cut in repo rate and announced a cut in cash reserve ratio (CRR).

The RBI announced cut in repo rate by 50 basis points (bps) to 5.50% against expectations of a 25-bps rate cut. RBI Governor Sanjay Malhotra also surprised investors by announcing 100 bps cut in CRR in a move to boost banking level liquidity.

The banking shares came under buying interest soon after these announcements. All the 12 shares, barring Canara Bank, in the NIFTY Bank index were trading higher. IDFC First Bank was top gainer with 5.56% gain. Axis Bank, AU Small Finance Bank, HDFC Bank, Kotak Mahindra Bank and State Bank of India also rose between 1.25%-3.35%.

State-run lenders were also witnessing buying as the gauge of banking shares on the National Stock Exchange, NIFTY PSU Bank index, rose 1.25%. Shares of Union Bank of India, Bank of Baroda, Indian Bank, Punjab National Bank and Punjab & Sind Bank rose between 0.4%-1.2%.

RBI cut the CRR by 100 basis points to 3% from 4% in a major boost to provide liquidity to banks.

"To further provide durable liquidity it has now been decided to reduce the CRR by 100 basis points from 4% to 3% of net demand and time liabilities. This will be done in a staggered manner during the course of the year in four equal tranches of 25 basis points each coming into effect from the fortnight beginning September 6, October 4, November 1 and November 29 of this year," RBI Governor Sanjay Malhotra said while announcing the Monetary Policy Decision.

The cut in CRR will release primary liquidity of about ₹2.5 lakh crore into the banking system by the end of November 2025, Governor noted.

Besides providing durable liquidity, it will also reduce cost of funding of the banks thereby helping and accelerating monetary policy transmission to the credit market, Governor Malhotra added.

Jumbo rate cut

The RBI's Monetary Policy Committee decided to reduce repo rate by 50 basis points to a three-year low of 5.50% in a move to support growth amid stable inflation outlook.

After a detailed assessment of the evolving macroeconomic and financial development, as well as the economic outlook, the MPC decided to reduce the repo rate by 50 basis points, RBI Governor Sanjay Malhotra said.

RBI however, retained the GDP forecast for the current fiscal at 6.5%. The inflation projection was lowered to 3.7% from the earlier estimate of 4%, supported by expectations of a good monsoon.

"Indian economy is progressing well and broadly on expected lines. Strong macroeconomic fundamentals and benign inflation outlook provide space to monetary policy to support growth, while remaining consistent with the goal of price stability," Governor Malhotra said in his concluding remarks.

"As global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability. Accordingly, today’s monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory," he added.