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<ul><li>Private bank stocks crashed on Thursday trade, with BSE Bankex falling by 936 points, and <keyword id="19896381" type="General" weightage="20" keywordseo="nifty" source="keywords">Nifty</keyword> Bank by 806 points.</li><li><keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> kept its FY24’s inflation projections unchanged, and sees Q1 of FY25’s inflation at 5%.</li><li>Investors slashed positions in financial stocks as RBI is not showing signs of rate cut in the near term, say analysts. </li></ul>Indian benchmark indices which opened on a positive due to US markets rally, crashed on Thursday trade. Sensex shed 723 points and Nifty nosedived by 212 points after RBI’s Monetary Policy Committee (MPC) kept key policy rates unchanged and remained focussed on ‘withdrawal of accomodation’ in its February policy review. The RBI also raised FY24’s GDP growth projections to 7.3%, and that of FY25 to 7%. This too did not cheer the markets as it kept its FY24’s inflation projections unchanged, and also sees Q1 of FY25’s inflation at 5%, well above its 4% target. It projects FY25’s retail inflation at 4.5%, provided there is a normal monsoon. “The MPC will carefully monitor any signs of generalisation of food price pressures which can fritter away the gains in easing of core inflation,” said RBI Governor <keyword id="19913110" type="General" weightage="20" keywordseo="shaktikanta-das" source="keywords">Shaktikanta Das</keyword>. The commentary has disappointed the street, with almost all banking indices slumping by 1%. "The RBI remains vigilant on inflation &amp; banking liquidity. The incomplete transmission of the cumulative 250 bps and the inflation ruling above the target level adds uncertainty about the timing of the interest rate reduction,” said <keyword id="19969359" type="General" weightage="20" keywordseo="vinod-nair" source="keywords">Vinod Nair</keyword>, head of research, Geojit Financial Services. Most economists now believe that the possibility of a rate cut has been pushed back.“Based on the RBI’s assessment of inflation and its new interpretation of the policy stance, any rate cut before August-2024 policy looks unlikely. By August, we will have a fair understanding of the monsoon progress and sowing trends to make a reasonable assessment of the food inflation in FY25,” said Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC. BSE Bankex fell by 936 points, while Nifty Bank fell by 806 points. Most of this fall is seen in private banks because Nifty PSU Bank gained 2% at the end of the day. Kotak Bank and Axis Bank were amongst Nifty50’s top losers as they fell by 3.5% and 3% each. “Selling intensified after the RBI's monetary policy announcement in the first half with heavy selling in private banking scrips leading the slump. Banking industry has been facing liquidity issues in recent times and with the central bank's decision showing no signs of interest rate cut in the near term, investors slashed their positions in financial stocks,” said <keyword id="20226500" type="General" weightage="20" keywordseo="prashanth-tapse" source="keywords">Prashanth Tapse</keyword>, senior VP of research), Mehta Equities. Nifty IT, Nifty Media and Nifty Oil &amp; Gas were the only ones that closed in the green, along with midcaps. The sharp gains in IT and oil &amp; gas stocks helped markets pare some of the losses. Analysts however say the underlying sentiment remains sluggish to negative. SBI, BPCL, Power Grid, Coal India and Hindalco were amongst the top gainers in Nifty50, while Britannia, Nestle and Eicher Motors were also the top losers on Thursday.

Bank stocks lead Sensex, Nifty crash as credit policy disappoints

<ul><li>As expected, RBI cut repo rate by 25 basis points or 0.25% </li><li>It also kept its stance as accommodative. </li><li>BSE Sensex rose 200 points in the morning anticipation of a sharp rate cut. </li></ul>Indian central bank today cut the repo rate by 25 basis points, and retained its accommodative stance. This is the fifth consecutive rate cut, brings interest rate to 5.15% at which the Reserve Bank of India (RBI) to banks. The RBI has cumulatively cut interest rates by 1.35% as of now, in multiple cuts. In the last monetary policy, it went ahead with a 35 basis point rate cut, which was unprecedented. RBI also reduced its growth rate projections for the current financial year to 6.1% from 6.9% earlier. The stock markets have been predicting a 25 basis point or higher rate cut and BSE Sensex rose 200 points in the morning in anticipation. “We pencil in a 40 bps of rate cut which should be a signal to the market that the Monetary Policy Committee is not quite done as it front loads the remaining couple of rate cuts in the cycle,” said Suvodeep Rakshit, Vice President &amp; Sr. Economist, Kotak Institutional Equities. RBI has been saying that growth will be a primary concern. In the first quarter of the financial year, the economy grew at 5% instead of the estimated 5.8-6.6% the first half. “With inflation remaining within its comfort range, despite recent onion price increases, revisions to its growth forecast warrant a sharper-than-usual rate cut in the October policy,” said Rakshit. Experts also believe that a chunky rate cut would speed up the slow transmission of rate cut benefits by banks to consumers. “The monetary policy expectation is not just limited to rate cuts. While aggregate liquidity conditions have improved, transmission remains slow. The RBI’s assessment of the same will be critical,” said a report by Edelweiss Research.

RBI cuts interest rate by 25 basis points and lowers GDP forecast to 6.1%

<ul><li>RBI maintained its status quo and left interest rates unaltered. </li><li>It relaxed NPA classification for real estate sector loans. It also said banks need to maintain extra CRR for loans to housing and MSMEs. </li><li>RBI also said that it will maintain accomodative stance as long as it is necessary. </li><li>Manufacturing PMI is scaling to a near eight year high of 55.3 in January 2020. </li></ul> India’s central bank today kept the base interest rates unchanged at 5.15%. However, it also provided a huge relief to the real estate sector wherein this sector’s loans will be given an extra year before they will be classified as non-performing assets. It means that builders have extra time to stay solvent before their loans land in the 'bad debt' pile of banks. This move will also ensure that housing finance companies which are stressed with bad loans, will not have to bear more brunt. In addition, the Reserve Bank of India (RBI) also wants banks and other finance companies to lend more for buying homes. The policy also said that banks will not have to maintain their cash reserve ratio for extra loans that will given to auto, housing sector and MSMSe. CRR is the amount that banks have to maintain with the Reserve Bank of India (RBI) at all times. Today's monetary policy also said that it will maintain its accomodative stance as long as it is necessary. "While this will be beneficial to banks which can be incentivized to lend more to these sectors, the present state of excess liquidity may not really warrant such action on a large scale. However, to the extent that resources are freed from CRR they can be invested even in the reverse repo auctions at the limit to accrue a net gain," said a report by CARE Ratings. Stock market gains The stock market which has been trading flat all morning spiked after the announcement. The BSE Sensex gained 189 points and Nifty gained 39 points. Stocks like HDFC gained by 1.71% while DHFL which is in insolvency process also gained by 5%. RBI also said that its inflation projection for the second half of the current year at 5.1-4.7% was overshot in December - but is likely to soften going forward. "First, food inflation is likely to soften from the high levels of December and the decline is expected to become more pronounced during Q4:2019-20 as onion prices fall rapidly in response to arrivals of late kharif and rabi harvests. Higher vegetables production, despite the early loss due to unseasonal rain, is also likely to have a salutary impact on food inflation," the policy document said. Even as the RBI governor indicated that any more rate cuts will depend on data, few economists believe that it is possible - since inflation is still high at 5.45%. “As expected the central bank has maintained status-quo, to evaluate the inflationary environment and achieve the desired fiscal developments.We believe any further rate cuts would be delayed. The policy makers are keenly watching the implications of all the past policy announcements including the well-balanced Budget 2020. The five fold cut in the past The RBI has been more than generous last calendar year while setting its base rate. It cut its repo rate - the rate at which it lends to banks - by five times, consecutively. This credit policy however, it was widely expected to maintain its status quo and leave interest rates unaltered like it did in its last and final policy of 2019. In December, CPI inflation spiked to an unexpected five-year high of 7.35%. This inflation pushed by vegetable prices had gone beyond the upper band of RBI’s expectations. Consequently, it has become wary of taking chances. null 
 
 
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 A crude awakening When it cut its rates five times last year, it was cushioned by benign inflation rates. Inflation of food and non-food items both can be affected if the Reserve Bank of India (RBI) decides to release liquidity into the system by tinkering interest rates. Since it was low, it had the option to cut its rates. All this changed last month. However, the spike in inflation seems to be coming down. Since India is a net exporter of crude oil, the scare of a possible war like situation has kept economists on the edge. However, that worry has passed and crude oil prices fell to $55 a barrel - and inflation is subdued yet again. In spite of this, analysts expected the RBI is expected to keep base rates unchanged at 5.15%. For one, its endgame has been achieved. “The previous rate cuts were transmitted by the banks to borrowers as evident from the low marginal cost in banks lending rates,” said a report by Brickwork Ratings. This is an effect of the many rate cuts and though slow banks have started transmitting them to their borrowers. A job well done The need for the central bank to push for growth might be reducing. Due to various government stimuli, many macroeconomic indicators like index of industrial production (IIP) and core sector performance have improved. “This, coupled with manufacturing PMI is scaling to a near eight year high of 55.3 in January 2020, growth is likely to rebound next fiscal. We expect GDP growth of 5.5-6% in 2020-21,” said Brickwork Ratings report. This forecast is much lower than what the government’s economic survey has predicted India’s GDP growth to be - at 6-6.5%. If that is achieved, then the RBI might not have to stress itself with the job of halting India’s massive slowdown.

RBI Governor Shaktikanta Das gives a massive relief to the realty sector - that the Union Budget did not

<ul><li>Shaktikanta Das told the Times of India that public sector banks have certain social and macro-economic responsibilities and the ongoing consolidation model should be given time.</li><li>‘NBFCs with governance issues will be treated differently with intense regulations.’</li><li>The earlier light-touch approach will have to be suitably modulated in keeping with today’s requirements, Das said on NBFCs.</li></ul> The RBI governor would like to merge and reduce the number of government banks before any talks of selling them off to private players. While Shaktikanta Das said that the decision to privatise banks lies with the government, he also lent voice on the issue. “The questions of privatisation, etc, can be addressed later. Now, we have to focus on the model that has been adopted (of large, consolidated banks),” Das told <a href="https://timesofindia.indiatimes.com/business/india-business/privatisation-can-wait-give-time-to-see-results-of-banks-consolidation/articleshow/70322578.cms?UTM_Source=Google_Newsstand&amp;UTM_Campaign=RSS_Feed&amp;UTM_Medium=Referral">Times of India</a>. He added that the public sector banks have certain social and macro-economic responsibilities and the ongoing consolidation model should be given time. India had 21 government banks in 2018 before the mega merger of Vijaya Bank and Dena Bank with Bank of Baroda. In 2017 too, SBI merged with five of its affiliates and Mahila Bank. The government intends to merge banks and create at least four global-sized banks. In the Budget, finance minister Nirmala Sitharaman said that they brought down the number of government banks by eight. The government is <a href="https://www.livemint.com/industry/banking/finance-ministry-starts-groundwork-for-fresh-bank-consolidation-1558945007770.html">reportedly considering </a>a fresh round of mergers too. India has a large number of public sector banks after a historic decision by former Prime Minister Indira Gandhi to nationalise 17 private banks, and bring it under the government wing. Curbing a crisis Das intends to keep non-banking financial companies (NBFCs) on a tight leash. A crisis has been unfolding in India’s shadow banks or NBFCs-- the ones that lend money but do not take public deposits-- since the crash of the gigantic IL&amp;FS, which made loans to infrastructure projects. Not only has it caused a cash crunch in the system, but also revealed a lot of dirt in governance in these companies. “The earlier light-touch approach will have to be suitably modulated in keeping with today’s requirements and anticipated developments,” said Das. A few weeks back, in the Budget, Sitharaman armed the RBI with ‘more powers’ to tackle NFBCs and the crisis that has been unfolding over the last many months. With financial stability high on his mind, Shaktikanta Das told the <a href="https://timesofindia.indiatimes.com/business/india-business/privatisation-can-wait-give-time-to-see-results-of-banks-consolidation/articleshow/70322578.cms">Times of India </a>that those NBFCs with governance issues will be treated differently with intense regulations. At the same time, he also said that NBFCs in general will be provided liquidity support, as banks have stalled lending to them after IL&amp;FS turned insolvent last year. He however <a href="https://economictimes.indiatimes.com/markets/stocks/news/rbi-in-sync-with-government-efforts-to-accelerate-growth-shaktikanta-das/articleshow/70322831.cms">denied the </a>sector’s request to gain ‘clean, unsecured money’ directly from the regulator. Accomodative stance When asked about a possible cut in base rates yet again, Das said that they have already provided the market with 75 basis points rate cut. Added to that, they have taken an ‘accomodative stance’ which itself implies another 25 basis point rate cut, taking the effective cut to 100 basis points. This, according to him is ‘adequate’ liquidity which is being sent into the system. RBI, under Das’ stewardship is working with the government to ensure growth and ‘accelerate economic expansion’. Its efforts are in sync with that of government to make sure there is credit growth. “I believe in having consultations with all stakeholders and the government is much more than a stakeholder,” he told TOI.

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Bank stocks lead Sensex, Nifty crash as credit policy disappoints

BI India Bureau

RBI cuts interest rate by 25 basis points and lowers GDP forecast to 6.1%

Katya Naidu

RBI Governor Shaktikanta Das gives a massive relief to the realty sector - that the Union Budget did not

Katya Naidu

Bank mergers before privatisation is one of three biggest headlines from RBI governor Shaktikanta Das’ interviews

Katya Naidu

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