SBI, HDFC Bank: Banking stocks rally for sixth session; check latest factor driving surge in NIFTY Bank

The banking shares were witnessing strong buying interest for sixth session in a row with measure of banking shares on the National Stock Exchange, NIFTY Bank index, surging as much as 1.18% in intraday deals to hit record high of 55,961.20. In the last six trading sessions, NIFTY Bank index has rallied as much as 11.38% or 5,720 points, data from the National Stock Exchange showed.

In Tuesday's trading session, eight out of 12 shares in the NIFTY Bank index were trading higher led by Canara Bank's 3.26% gain. Bank of Baroda, State Bank of India, Kotak Mahindra Bank, IDFC First Bank, HDFC Bank and Federal Bank were also trading with a positive bias.

The latest round of buying in banking stocks came after the Reserve Bank of India (RBI) on Monday, April 21, relaxed liquidity coverage ratio (LCR) norms for the banks.

The RBI on Monday directed banks to assign additional 2.5% liquidity buffer rate to internet and mobile banking-enabled retail and small business customer deposits from April 1 next year to stave off any possible risks during times of stress.

In July last year, the RBI had proposed an additional 5% run-off factor, which means the probability of deposits getting withdrawn/transferred, including in stressed situations.

The revised framework, in the works for almost a year, also comes against the backdrop of instances in some foreign jurisdictions where during financial stress, depositors quickly withdrew or transferred funds using digital banking channels.

From April 1, 2026, banks will have to assign an additional 2.5% run-off factor for retail deposits which are enabled with internet and mobile banking facilities (IMB), an RBI circular said.

The RBI said the decision follows stakeholders' feedback on draft guidelines on 'Basel-III Framework on Liquidity Standards -- Liquidity Coverage Ratio (LCR) -- Review of Haircuts on High Quality Liquid Assets (HQLA) and Run-off Rates on Certain Categories of Deposits' issued last July.

Multiple brokerages said that the LCR relaxation norms for banks will lead to easing the funding and liquidity conditions and enhancing their operational performance.

Q4 earnings boost

A strong start to fourth-quarter earnings season by the country's top lenders also led to heavy buying of the banking shares.

HDFC Bank, the country's largest private sector lender, reported a net profit of ₹17,616 crore, marking an upside of 6.6%, surpassing the street estimate of ₹17,000 crore. HDFC Bank's net interest income, or the difference between interest earned and interest expended, rose 10.3% to ₹32,066 crore in the March quarter from ₹29,080 crore in the December quarter.

ICICI Bank posted better than anticipated earnings in March quarter after it reported a net profit of ₹12,630 crore in the quarter ended March 2025, marking an increase of 18% from ₹10,707.53 crore in the same period last year.

Smaller private lender YES Bank also surprised market participants in the fourth quarter after its net profit advanced 63% to ₹738 crore in the March quarter on the back of lower provisioning for bad loans and stable asset quality.

RBI's repo rate cut

The banking shares caught investors' interest after the Reserve Bank of India (RBI) announced a repo rate cut last week in a move to support growth.

Following the rate cut by the RBI, a whole host of banks announced interest rate cuts, thereby reducing borrowing costs.

Reduction in interest rates for loans augur well for future earnings of banks as it will lead to higher demand for loans across categories like home loans, personal loans, car loans and others, analysts said.

As of 12:32 pm, NIFTY Bank index traded 0.63% higher at 55,652, outperforming the NIFTY50 index which was up 0.24%.