Nifty Bank Soars to Record High After RBI’s Steeper-Than-Expected Rate Cut; HDFC Bank, Axis Bank, IDFC First Bank top gainers

The Nifty Bank index, a benchmark to gauge sentiment for banking stocks, hit a record high of 56,624.40, surging nearly 1.5% on June 6, buoyed by the Reserve Bank of India’s steeper-than-expected rate cut and reduction in the cash reserve ratio requirement.

Prominent names like HDFC Bank, Axis Bank, and IDFC First Bank were the frontrunners on the Bank Nifty index, soaring 2-6% higher. Other names like ICICI Bank, Kotak Mahindra Bank, AU Small Finance Bank and SBI also rose 1-2%.

The RBI surprised markets by slashing the repo rate by 50 basis points to 5.5%, doubling the anticipated 25 basis point cut. Alongside the rate move, it also shifted its policy stance from ‘accommodative’ to ‘neutral,’ a signal that the central bank is aiming to strike a balance between supporting growth and navigating global macroeconomic uncertainties.

Investors are hopeful that lower borrowing costs will spur demand for interest-sensitive sectors like housing and automobiles, which could, in turn, bolster profitability for lenders, both banks and non-banking financial companies.

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Meanwhile, the RBI also announced a sharp 100 basis point (1%) cut in the Cash Reserve Ratio (CRR), bringing it down from 4% to 3%. The move which is aimed at infusing additional liquidity into the banking system and encouraging credit growth further lifted market sentiment, particularly for banking and NBFC stocks. This also marks the first CRR reduction since December 2024.

“The 100 bps CRR cut should further ease liquidity conditions by ₹2.5-lakh crore in the banking system and support faster transmission of rate cuts to both deposit and lending rates,” said Vikram Chhabra, Senior Economist, 360 ONE Asset.

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS believes that for the banking sector, the pick-up in credit growth, which has been subdued as banks exit FY25 remains pivotal.

“Hopes are pinned on a possible recovery in the second half of FY26, supported by falling interest rates, expectations of a strong monsoon, consumption boost from the tax rate cut and potential recovery in demand for the unsecured segments as stress subsides,” Kulkarni said.

Meanwhile, he also see tailwinds for net interest margins given the improving systemic liquidity and the deposit rate cuts taken by most banks. Even though he expects the first half of FY26 to see a more pronounced impact of the rate cut on NIMs, he forecasts some respite over the second half.

“In addition, asset Quality concern appears to be steadily waning with unsecured segment stress showing gradual signs of stability, while the secured segment asset quality continues to hold up well,” Kulkarni added.

Rounding that up, he prefers banks with promising growth prospects, healthy deposit franchises, stable asset quality metrics and strong and steady management teams. “We continue to prefer the larger private banks and our picks would be HDFC Bank, ICICI Bank and Kotak Bank amongst the larger private banks and City Union Bank amongst the mid-sized banks,” he said.