Kotak, ICICI, HDFC To Axis: Why Bank Stocks Are Rising Despite RBI Holding Repo Rate? 5 Factors Explained

RBI MPC Repo Rate Policy: Despite a dull start to the trading sessions, banking stocks surged on Wednesday. From Kotak Bank, ICICI Bank, HDFC Bank, to Axis Bank, multiple bank sector stocks were trading higher after the Reserve Bank of India (RBI) Governor Sanjay Malhotra announced the monetary policy committee's meeting outcome.

RBI MPC Policy: 5 Key Bank Measures Announced Today

While the RBI MPC kept the repo rate unchanged at 5.5%, a slew of banking measures announced by Malhotra cheered Dalal Street investors. Here are all the details about the key bank reforms announced by the RBI Governor, Sanjay Malhotra, on Wednesday.

IPO Financing

The RBI has proposed to bring a framework for Indian banks to finance acquisitions by Indian corporates. Additionally, there will be no upper limit on lending against listed debt securities.

For IPO market, the RBI has enhanced limits for lending by banks against shares from Rs. 20 lakh to Rs. 1 crore and for IPO financing from Rs. 10 lakh to Rs. 25 lakh per person.

ECL Framework Deadline

The Expected Credit Loss (ECL) framework of provisioning with prudential floors will come into effect for all scheduled commercial banks from 1 April 2027. The deadline will not be applicable on Small Finance Banks (SFBs), Payment Banks (PBs), Regional Rural Banks (RRBs) and and All India Financial Institutions (AIFIs). The decision is expected to smooth the one-time impact of higher provisioning, if any, on their existing books.

Basel III Capital Adequacy Norms

The RBI has also proposed to make the revised Basel III capital adequacy norms effective for commercial banks (excluding SFBs, PBs and RRBs) from 1st April 2027.

Removal of Large Exposure Framework

The RBI has also proposed to withdraw the framework which disincentivised lending by banks to specified borrowers with credit limit from banking system of Rs 10,000 crore and above.

"While the Large Exposure Framework since put in place for banks addresses credit concentration risk to a particular entity or group at an individual bank-level, concentration risk at the banking system level, as and when considered necessary, will be managed through specific macroprudential tools," the RBI stated in its press release.

For Non-Banking Finance Corporations (NBFCs), the bank has proposed to reduce the risk weights applicable to lending by NBFCs to operational, high-quality infrastructure projects.

Urban Cooperative Banks

The RBI will also bring a discussion paper on licensing of new Urban Co-operative Banks (UCBs). "Since 2004, licensing for Urban Co-operative Banks (UCBs) had been paused. Considering the positive developments in the sector during the last two decades and in response to the growing demand from the stakeholders, we propose to publish a discussion paper on licensing of new UCBs," the RBI added in its press release.

Bank Stocks Outlook

Bank stocks are likely to see softer earnings growth in the second quarter of financial year 2025-26 (FY26) given tepid growth, NIM pressures, weaker treasury performance, etc, according to Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS.

"We expect NIMs to bottom out in Q2, so far. H2 margins should find support from deposit repricing and the CRR cut. Banks are seeing green shoots in terms of asset quality metrics and expect better outcomes from H2 onwards. We believe valuations for most banks are comfortable and clarity on pick-up in growth and improving asset quality metrics would warrant upside in banking stocks. We currently prefer HDFC Bank, Kotak Bank, SBI and Federal Bank," stated Kulkarni.

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