Nifty Bank Index Surges To Record High Above 56,500 Mark After RBI Announces 50 Bps Rate Cut

RBI Rate Cut News: The Nifty Bank index surged to an all-time high as it rallied 1.35 per cent to trade at 56,515.8 level on June 6. The rally came after Reserve Bank of India (RBI) Governor Sanjay Malhotra announced a repo rate cut of 50 basis points (bps), marking the third consecutive rate cut in 2025.

Notably, the central bank also reduced the Cash Reserve Ratio (CRR) after the RBI Monetary Policy Committee concluded its three-day meeting. The Nifty Bank index has rallied consistently for three consecutive sessions amid buzz around the RBI MPC June meet.

Nifty Bank Top Gainers

Shares of IDFC First Bank, Axis Bank and AU Small Finance Bank emerged as top gainers following the announcement of the rate cut as they traded higher by up to 5.24 per cent on the NSE. IDFC First Bank shares gained the most as the stock climbed nearly 6 per cent to a high of Rs 70.65 apiece on the NSE.

Top constituents of the Nifty Bank index in terms of weightage, such as HDFC Bank, ICICI Bank, Axis Bank and State Bank of India, traded higher by up to 3.13 per cent at the time of writing. Earlier today, shares of Axis Bank over 3 per cent to trade at an intraday high of Rs 1197.9 apiece on the NSE.

Other constituents of the index such as Kotak Mahindra Bank, Bank of Baroda, Federal Bank and Punjab National Bank also traded higher by up to 1.51 per cent at the time of writing. Shares of Punjab National Bank and IndusInd Bank also traded higher by as much as 0.77 per cent. Shares of Canara Bank bucked the trend amid a rally in banking stocks and traded lower by 0.63 at Rs 115.65 apiece on the NSE.

Why Are Bank Stocks Gaining

RBI’s 50 bps rate cut and the reduction of the Cash Reserve Ratio are likely to bolster liquidity and aid monetary policy transmission. Banking stocks are rate-sensitive and respond to changes in the repo rate. The repo rate is the rate of interest at which the RBI lends short-term funds to commercial banks.

Following the rate cut, the benchmark repo rate now stands at 5.5 per cent, and the CRR stands at 3 per cent. Notably, the reduction in CRR is expected to add Rs 2.5 lakh crore liquidity in the system and lower the cost of funding for banks. The RBI also lowered the Standard Deposit Facility (SDF) rate and the Marginal Standing Facility (MSF) rate by 50 basis points.

The repo rate-cut also happens to be steeper than anticipated by experts. Investor sentiment also turned positive amid hopes of potentially lower borrowing costs which in turn is expected to boost demand for other rate-sensitive sectors such as housing and which could, in turn add increase demand for credit.

Shrikant Chouhan, Head - Equity Research, Kotak Securities told Outlook Money that several macroeconomic factors apart from the rate cut such as upside surprise in GDP growth, controlled inflation, easing crude oil prices also contributed to the rally seen in banking sector stocks.

"Banks are fundamentally influenced by macroeconomic indicators, as these factors directly impact credit growth and asset quality. The recent upside surprise in GDP growth, controlled inflation, easing crude oil prices, and the added liquidity support through a 100 basis points CRR reduction are all favorable developments for the banking sector. These positive signals have been well-received by the markets, reflecting improved sentiment around the sector," Chouhan said.

Chouhan added that the rate cut and the reduction in the CRR are likely to provide support to the banking sector. Chouhan advised investors to focus on quality names in the banking sector.

"The banking sector has been grappling with two key challenges—slowing credit growth and tight liquidity conditions. The recent 50 basis points cut in the repo rate is expected to provide some support to credit growth, while the unexpected 100 basis points reduction in the CRR is likely to significantly improve systemic liquidity. Our outlook on the sector remains unchanged, and we continue to advocate a focus on quality names," Chouhan said.