Bank stocks were trading marginally higher following the Reserve Bank of India’s (RBI) decision to allow the reversal of liquidity facilities under both SDF and MSF even during weekends and holidays with effect from December 30, 2023.
While the central bank will review this decision after six months or earlier, the decision came with the view that this would facilitate better funds management by the banks.
The RBI conceded that the system liquidity, as measured by the net position under the liquidity adjustment facility (LAF), turned into deficit mode for the first time in September 2023 after a gap of nearly four and a half years since May 2019.
“Deficit liquidity conditions persisted during October and November prompting large recourse to the marginal standing facility (MSF) by banks. In parallel, utilisation of the standing deposit facility (SDF) has also been high,” Governor Shaktikanta Das said in his monetary policy speech.
In the December monetary policy which was RBI’s last MPC for 2023, the central bank left the repo rate unchanged at 6.5% on expected lines. While retaining its stance of withdrawal of accommodation, the RBI’s decision to leave rates unchanged was unanimously voted by the 6-member MPC panel, while the need to retain the stance was voted by 5 out of 6 members.
Banking gauge Nifty Bank was up by half a percentage point with Bank of Baroda and IDFC First Bank as top gainers around 10:40 am. In the 12-stock index, eight emerged winners with four stocks seeing a decline, namely AU Small Finance Bank, State Bank of India (SBI), Bandhan Bank and Federal Bank.
Adhil Shetty, CEO, Bankbazaar.com said that the measure is expected to facilitate better funds management by the banks.
“During the Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) chose to maintain the repo rate at 6.5 per cent, affirming its dedication to stability while gradually scaling back accommodation to align inflation with the 4% target,” he said, adding that repo rates wield significant influence over the interest rates set by banks for various loans, including home loans.
Seconds before the announcement of RBI’s policy actions, the Nifty 50 scaled the 21000-mark for the first time. The 30-stock Sensex also hit a lifetime high and was trading close to 70,000 mark.
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