Bank stocks lukewarm to rate cut

Bank stocks lukewarm to rate cut
ENS ECONOMIC BUREAU

FEB 19: As expected there was a lukewarm response to RBI Governor Bimal Jalan's decision to cut interest rate with select banking stocks like ICICI, SBI and HDFC Bank garnering buying interest. However, a continued buying in these stocks has more to do with fundamentals rather than the interest rate cut alone, according to analysts.

The rate cuts are likely to put further pressure on the margins of the banks especially the public sector ones.

Following the bank rate cut, banking sector stocks were expected to garner buying interest. On Friday, the RBI cut the BR, the rate at which it lends money to commercial banks, to 7.5 per cent from 8. It also announced a cut in the cash reserve ratio (CRR) to 8 per cent from 8.5 in two stages, releasing a total of Rs 4,100 crore for lending by the banks. Borrowing demand and overall economic activity would get a fillip as a result of these measures.

Amongst the BSE Sensex components, both SBI and ICICI closed the day firm by reporting over two per cent gain in their prices. While SBI closed the day at Rs 239.95, up 2.59 per cent, ICICI closed 2.10 per cent higher at Rs 99.60. SBI touched the day's high of Rs 243.45 whereas ICICI touched Rs 102.30 in intra-day trades.

Both SBI and ICICI witnessed heavy volumes coupled with an increase in share price. SBI clocked volumes of over 20 lakh shares, while ICICI witnessed volumes of over 16 lakh shares. Others to report a gain in their prices include Bank of Baroda and Bank of India.

BoI witnessed aggregate volumes of 6,75,000 shares on both bourses. The stock closed at Rs 18.4, up 2.2 per cent, while at NSE it closed at Rs 18.45, up 3.4 per cent. BoB also went up by 3.2 per cent to close at Rs 60.9 on BSE while at NSE it closed at Rs 60.6 up by 1.85 per cent. The stock attracted a total volume of 6,80,000 shares on the two bourses.

Other banking and financial sector stocks like ICICI Bank, Bank of Rajasthan, UTI Bank, IFCI, Corporation Bank, Global Trust Bank, HDFC Bank, Bank of Madura, IDBI Bank and Centurion Bank were also in the limelight on renewed buying interest in the financial sector.

Housing finance companies like HDFC and LIC Housing Finance also attracted buying interest. SBI, on the heels of the rate cut, reduced its prime-lending rate by half a per cent to 11.50 per cent per annum. The medium-term lending rate, however, remains unchanged at 12 per cent. Several other banks are expected to follow suit.