The banking gauge Bank Nifty extended its rally to hit a fresh lifetime high in trade on Monday, June 9, claiming the 57,000 level for the first-time ever as the Reserve Bank of India's surprise repo rate cut of 50 basis points and CRR cut buoyed the bullish sentiment. The dual indices for PSU lenders and private sector banks also recorded sharp gains in trade.

The Reserve Bank of India's Monetary Policy Committee slashed the key lending rate by 50 basis points on Friday, June 6, ahead of market expectations. During the April meeting, the RBI MPC cut the lending rate by 25 basis points to the 6 percent mark, down from 6.25 percent earlier, marking the second consecutive rate cut. With the 50 basis points cut, the repo rate stands at 5.5 percent.

Further, banking stocks got a fillip from the RBI trimming the CRR, also known as the cash reserve ratio, by 100 basis points. The CRR cut will happen in four tranches of 25 basis points each starting from September 6, October 4, November 1 and November 29 this year.

At 9.30 am, the Bank Nifty index was trading at 56,828.75, higher by 0.44 percent or 250 points. The index retreated slightly from the 57,000 level. On the banking index, Kotak Mahindra Bank, Canara Bank, and IDFC First Bank were among the top gainers, rallying between 1.5 - 2.5 percent.

The Nifty Private Bank index rallied 80 basis points to 28,067.95, with RBL Bank, Kotak Mahindra Bank and Bandhan Bank emerging as the top winners. The Nifty PSU Bank index led the sectoral gainers, jumping up to 1.2 percent in the early session. UCO Bank, Bank of Maharashtra and Indian Overseas Bank were amid the counters reporting the maximum gains in trade, soaring between 3 - 4 percent.

During the ongoing monetary policy easing cycle, experts had already pencilled in an easing of 100-125 basis points in the repo rate. The only surprise on the rate cut front was the Reserve Bank of India frontloading the cuts, ahead of expectations. Therefore, the real surprise came as the cut in the CRR, with the central bank enhancing the liquidity available.

"The CRR cut is expected to provide some support to margins. We expect the recent actions of RBI – injection of durable liquidity since January 2025, relaxation of LCR norms, reduction of risk-weights on MFI loans and loans to NBFCs, overall repo rate cut of 100 bps since February 2025, and cumulative CRR cut of 150bp (since December 2024) – to provide some impetus to system loan growth," said Nomura, the Japan-based brokerage.

The brokerage added that it expects the CRR cut to benefit to be higher for mid-sized banks, such as IndusInd Bank, AU Small Finance Bank and Federal Bank and deposit-growth constrained large banks such as Axis Bank and HDFC Bank.