The Reserve Bank of India's liquidity infusion of Rs 1.5 lakh crore through various special measures to boost liquidity in the system will be positive for banks and non-bank financial companies, according to analysts.
Citi said the central bank's move is "sentimentally positive" for banks with stretched loan-to-deposit ratio, like HDFC Bank Ltd., Axis Bank Ltd., Federal Bank Ltd., and Bank of Baroda.
"Liquidity measures will release some deposit/credit growth challenges engulfing the sector over the past few months," a note said.
Moreover, wholesale rates easing will relatively benefit LIC Housing Finance Ltd., Bajaj Finance Ltd. and Mahindra & Mahindra Financial Services Ltd.
The RBI on Monday announced bond purchases via open market operations worth Rs 60,000 crore, a 56-day variable rate repo auction for an amount of Rs 50,000 crore and dollar-rupee buy-sell swap auction of $5 billion for six months.
As of Jan. 24, liquidity in the banking system was in the deficit mode of Rs 2.82 lakh crore as against Rs 1.04 lakh crore as on Jan. 1.
Such liquidity measures and rates will be benficial for financial companies, especially ahead of year-end tightness, according to Jefferies. It also raised the possibility of easing on liquidity coverage ratio, or other aspects in the Feb. 7 RBI monetary policy committee meeting.
Morgan Stanley said RBI's "multi-pronged approach to undertake liquidity management" will augment durable liquidity, against a backdrop of adverse seasonal factors in the second half of the current fiscal and volatility from capital flows.
Overseas funds have pulled over Rs 74,000 crore out of India this month, according to NSDL data.
"These are likely to help bridge the deficit and reduce the tightness in financial conditions at the margin," it said.
The brokerage expects the RBI to continue with its liquidity-enhancing measures, especially in March 2025 quarter, given seasonal factors and commence a shallow rate easing cycle from the February policy, bearing in mind the domestic growth-inflation conditions.
RBI Rate Cut Scenario
Citi projects a 25 basis points rate cut at the February MPC meeting.
A bigger interest rate cut, assuming a parallel shift in the yield curve, reveals varying sensitivities in net interest income over a one-year horizon, the brokerage said.
The impact is highest for Federal Bank (4.5% of NII), followed by Bank of Baroda (3.6%), Kotak Mahindra Bank (3.6%), HDFC Bank (3.5%), and Axis Bank (3.4%/). In contrast, the adverse effect is minimal or less than 1% for IndusInd Bank Ltd. and AU Small Finance Bank Ltd.
For NBFCs and housing finance companies, borrowing rates will adjust only after the rate cut is implemented, Citi said.
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