NIFTY Bank extends gains for 4th straight session, surpasses 53,000 level; here’s why

The NIFTY Bank index, which comprises India’s large capitalised Indian banking stocks, rose for the fourth consecutive session on Wednesday, December 4, as the Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) meeting begins today.

The three-day meeting to determine key lending rates will conclude on Friday, with RBI governor Shaktikanta Das announcing the decision at 10 am that day.

In the run-up to the announcement on interest rates, the NIFTY Bank index settled 1% higher on Wednesday, December 4, at 53,266.90. This takes its four-day gains to a cumulative 2.5%. In comparison, the broader benchmark NIFTY50 index has gained as much as 2.7% in the past four trading sessions.

Experts believe that banking stocks are rising on the possibility of a cut in the cash reserve ratio (CRR) in the upcoming RBI meeting even as rates may remain unchanged. A cut in CRR would be able to handle the tight liquidity condition currently prevailing in the banking system.

Lower CRR would turn out to be a positive for Indian banks as it would boost their profit numbers in the coming quarters.

CRR is the percentage of a bank’s total deposits that it must maintain in liquid cash with RBI as a reserve. Banks do not get any interest on this amount. It currently stands at 4.5%.

Decision on interest rates and CRR would be critical for Indian banking stocks in the light of GDP growth for the September quarter falling to a seven-quarter low of 5.4% and retail inflation rising to 14-month high of 6.2% in October.

Separately, sentiment around the banking stocks was also positive on Wednesday as the Lok Sabha on Tuesday passed the Banking Laws (Amendment) Bill, 2024. The amendments seek to improve governance in the Indian banking sector besides enhancing consumers' and customers' convenience with respect to nominations and protection to investors.