Bank stocks rally up to 3% as RBI announces measures to manage liquidity conditions

Bank stocks surged as high as 3.3% on Tuesday, January 28, after the Reserve Bank of India (RBI) announced measures to inject liquidity into the banking system, following a review of current liquidity and financial conditions.

Canara Bank shares increased by 3.3%, followed by the shares of AU Small Finance Bank, which increased by 3% to Rs 580.85 on the BSE. PNB shares zoomed 3% in early trade.

Meanwhile, IDFC First Bank shares rose by 2.85% to their day’s high of Rs 58.38, while Bank of Baroda shares gained 2.5%. The shares of Axis Bank rose 2%, while ICICI Bank shares were up by 1.77%.


HDFC Bank’s shares had a 1.72% rise, and IndusInd Bank shares gained 1.6%. , while the State Bank of India’s stock saw a minor gain of 1%.

In contrast, Kotak Mahindra Bank shares declined slightly by 0.5%, and Federal Bank, affected by disappointing Q3 results, experienced a significant drop of 6.2%.

Further, the Nifty Bank index surged by 1.2% in intraday trade.

Here are the measures announced by India's central bank:

1. OMO purchase auctions of Government of India securities for an aggregate amount of Rs 60,000 crore in three tranches of ₹20,000 crore each to be held on: January 30, 2025, February 13, 2025, February 20, 2025.

2. 56-day Variable Rate Repo (VRR) auction for a notified amount of ₹50,000 crore to be held on February 7, 2025.

3. USD/INR Buy/Sell Swap auction of USD 5 billion for a tenor of six months to be held on January 31, 2025.

The RBI "will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions," it said.

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Following the RBI's announcement, yields on the 10-year benchmark government securities are expected to ease toward 6.60% on Tuesday. On Monday, yields on the 10-year benchmark government security dropped to a nearly three-year low of 6.64% intraday, amid expectations of a potential rate cut ahead of the monetary policy meeting on February 7.

By market close, the 10-year benchmark yield eased four basis points to 6.68%, compared to its previous close of 6.72%.

The RBI's move to purchase bonds directly from banks is seen as a clear intent to infuse durable liquidity into the system ahead of the monetary policy, so that rate transmission is effective if a rate cut happens, dealers said. "Now the signalling has changed because we are seeing multiple measures in quick succession," a bond dealer said.

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