Banking stocks tumble up to 12% from day's high after RBI's monetary policy

Banking stocks gave up their early gains on Thursday after RBI's monetary policy outcome. The selling in banking stocks, specially private lenders, dragged the markets lower even as the central lender maintained status quo in its policy and kept the repo rate unchanged at 6.5 per cent.

On Thursday, the RBI expanded the key fact statement obligations to encompass all retail and MSME loans, previously required only for a specific group of lenders. Consequently, all banks are now obligated to furnish a statement for every retail and MSME loan, revealing processing fees and any supplementary charges.

This disclosure was seen as a negative for banking stocks, particularly the private lenders, which usually charge heavy hidden fees. This is likely to weigh on their margins in the coming quarters, triggering a sudden sell-off in the lenders post RBI's MPC announcement.

Implementing and maintaining the key fact statement system could add operational expenses for private lenders, potentially negatively impacting their profitability. The standardized format of the key fact statement might limit the ability of private lenders to offer customized pricing deals, thus reducing pricing flexibility and making them less competitive in certain segments, said said Atul Parakh, CEO of Bigul, a dicount broker.

"Positive impacts include enhanced transparency as the key fact statement can improve transparency and make it easier for customers to compare loan offers from different lenders, including private banks. It will also lead to reduced regulatory scrutiny as by adhering to new regulations, private lenders may avoid future regulatory sanctions," he said.

Nifty Bank has formed a bottom 45,500–44,800 zone; however, a 20-DMA of 46300 is an immediate resistance; above this, we can expect a rally towards the 46800–47000 zone, said Sunil Nyati, Managing Director of Swastika Investmart.

In the private sector banks, YES Bank tumbled about 12 per cent day's high. The stock slipped to Rs 32.7 to Rs 28.90. Axis Bank dropped over 3.5 per cent from day's high at 1,075.60 to Rs 1,037.05. ICICI Bank also declined about 3.25 per cent to slip below Rs 1,000 mark. AU Small Finance Bank dropped more than 3.3 per cent to Rs 605 levels during the session.

IndusInd Bank (2.65 per cent down from day's high) Kotak Mahindra Bank (2.6 per cent down from day's high), HDFC Bank (2.15 per cent down from day's high), IDFC First Bank (2.14 per cent down from day's high) and Federal Bank (2.1 per cent down from day's high) were other key laggards on the Nifty Private Bank index.

Ajit Mishra, SVP - Technical Research at Religare Broking said that this selling is a knee-jerk reaction of the street. "We need to see how this moves pan out and how the banks tackle this in the coming time."

Even as the Nifty Bank index shed about a per cent, PSU Banks were soaring high. The largest state run lender, State Bank of India (SBI), gained about 6 per cent in the early session, while Indian Bank advanced 4.9 per cent during the day. Bank of India, Union Bank and Canara Bank were up 1.5 per cent to 3 per cent each for the day.

The tight liquidity in the banking system may continue for some more time as the focus is on bringing down inflation towards 4 per cent, said Mukesh Kochar, National Head of Wealth at AUM Capital. "Increased public debt globally has been cited as a concern and which is very important," he said.

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