Banking stocks rally as RBI delivers surprise rate and CRR cuts; Nifty Bank jumps 1.6%, Nifty Fin Services surges 2%

Mumbai, June 6, 2025:
Indian equity markets witnessed a robust rally in banking and financial services stocks on Thursday after the Reserve Bank of India (RBI) delivered an unexpected double-barrelled monetary easing — a 25 basis points (bps) cut in the repo rate coupled with a 50 bps reduction in the Cash Reserve Ratio (CRR). This surprise move lifted investor sentiment and triggered a broad-based rally across rate-sensitive sectors.

The Nifty Bank index surged 1.6%, while the Nifty Financial Services index soared 2%, outperforming the broader Nifty 50, which closed 0.75% higher at 24,965. The RBI’s unexpected dovish turn has ignited hopes of a more accommodative policy environment aimed at supporting growth and improving liquidity in the banking system.

RBI Surprises With Growth-Focused Easing

In its bi-monthly monetary policy review, the RBI Monetary Policy Committee (MPC) unanimously voted to reduce the repo rate from 6.25% to 6.00%, surprising market participants who largely expected a status quo. More strikingly, the central bank slashed the CRR — the portion of deposits banks must hold with the RBI — from 4.5% to 4.0%, effectively releasing an estimated ₹1.2 lakh crore into the banking system.

RBI Governor Shaktikanta Das stated that the dual move was aimed at "reinforcing the momentum of growth while ensuring financial stability and durable disinflation." He added that while inflation remains within target range, the recent signs of slack in consumption and private investment warranted proactive measures.

Banking Stocks Lead the Charge

The banking and financial services space was the clear winner of the day. Shares of HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Axis Bank jumped between 1.5% and 2.3%, while State Bank of India (SBI) surged over 2.5% on high volumes. Non-banking financial companies (NBFCs) also participated in the rally, with Bajaj Finance, HDFC Ltd., and LIC Housing Finance rising 2–3.5%.

“The CRR cut was a major surprise and adds a strong liquidity tailwind for banks, especially mid-sized lenders and NBFCs,” said Deepak Jaswal, Head of Research at Axis Securities. “This will not only lower cost of funds but also support fresh credit growth.”

“The RBI’s clear growth priority is a bullish signal for financial stocks. Lower policy rates and ample liquidity are a powerful combination,” said Shruti Mehra, Economist at HSBC India.

Bond Yields Fall, Rupee Gains

The bond market also responded positively, with the 10-year benchmark yield falling by 12 bps to 6.87% — its lowest in three months — as traders priced in further easing possibilities. The rupee gained 16 paise to settle at 82.34 against the US dollar, buoyed by foreign inflows and improved market sentiment.

“With inflation largely under control and global interest rate cycles peaking, the RBI seems to have more room to maneuver,” noted Anish Roy, Chief Fixed Income Strategist at SBI Mutual Fund.

Liquidity and Lending Boost Expected

The CRR cut is expected to immediately improve banking system liquidity, reduce overnight call rates, and lower funding costs for banks. Analysts anticipate that banks may pass on the benefit through reduced lending rates, particularly in segments like housing, auto, and MSME credit.

This move also benefits NBFCs and housing finance companies, which typically rely on bank funding. "This CRR cut directly improves the transmission of lower rates to borrowers," said Nandini Desai, a credit strategist at Edelweiss.

Investor Outlook: Bullish Momentum May Sustain

Market participants believe the rally in financials could sustain in the near term as the RBI’s actions translate into improved earnings visibility and higher credit offtake. Analysts advise a selective approach, favoring well-capitalized private sector banks and top-tier NBFCs.

“This is the beginning of a new credit cycle. We remain overweight on financials, especially private banks and leading housing financiers,” said Ravi Arora, Portfolio Manager at ICICI Prudential AMC.

On the valuation front, banking stocks remain attractively priced compared to historical averages, with price-to-book multiples still moderate. This, combined with robust balance sheets and improving asset quality trends, makes the sector a compelling play for medium to long-term investors.

The RBI’s unexpected twin easing through a repo rate and CRR cut has breathed fresh life into India’s financial markets. With inflation contained and growth still below potential, the move is being seen as a proactive measure to kickstart credit expansion and economic momentum. Banking and financial stocks are expected to remain in the spotlight as investors recalibrate their portfolios around this renewed policy support.