RBI repo cut plunges public sector bank shares

It is the first time in 17 months that RBI has slashed its rate, with the last instance happening in August 2017

New Delhi: Shares of most state-run banks were in a dire state on Thursday after the monetary policy committee (MPC) of Reserve Bank of India (RBI) unexpectedly slashed the repo rate by 25 basis points to 6.25 percent in 42 votes. It is the first time in 17 months that RBI has cut its rate, with the last instance happening in August 2017.

The Committee also changed the policy 'stance to neutral' from 'calibrated tightening;' the review is the first monetary policy review for former economic affairs secretary Shaktikanta Das, who in December took over as RBI governor.

"MPC announced cut of 25 bps and changed stance to Neutral that addresses two immediate challenges. One is making liquidity available at cheaper costs specially to banks who are focused on higher loan growth via retails loans and asset purchase from NBFCs, though this will not mean cheaper loans to NBFCs as banks are aggressively looking to increase market share," Sameer Kalra, from Equity Research Analyst & Founder Target Investing, said.

"(With) the Neutral stance and lower inflation for H2CY19, we see the scope of a rate cut in April meeting as well."

Around 12:51 pm, the Nifty PSU Bank index was trading 0.44 percent down at 2938.45.

Top losers in the index

Union Bank of India's shares were down 0.94 percent, while Vijaya Bank went down 0.82 percent. Additionally, Bank of Baroda saw its shares go 0.82 percent down and IDBI Bank's share dropped down 0.80 percent.

Among those trading lower were Oriental Bank of Commerce (down 0.71 per cent), Indian Bank (down 0.46 per cent) and State Bank of India (down 0.43 per cent).