In today’s trading session, Indian banking stocks experienced a significant boost, marking their third consecutive day of gains. This positive momentum follows a notable decline in India’s retail inflation, which has reached a multi-year low. As investors responded with optimism, speculations grew regarding another potential rate cut from the Reserve Bank of India (RBI). Recently, the RBI lowered the key repo rate from 6.5% to 6%, following two consecutive cuts of 25 basis points.
Banking Stocks Surge Amid Positive Economic Signals
The Nifty Bank index climbed 0.70%, reaching an intraday high of 52,749 points. Notable performers included:
- Federal Bank
- Bank of Baroda
- Canara Bank
- Punjab National Bank
These banks saw their stock prices rise by up to 2%. Additionally, major banks like Kotak Mahindra Bank, Axis Bank, IndusInd Bank, and State Bank of India also recorded gains exceeding 0.5% during the session.
Analysts Predict Strong Credit Growth
Experts anticipate a rebound in credit growth, largely influenced by the RBI’s recent rate cuts and a boost in the income tax exemption limit to ₹12 lakh as outlined in the Union Budget 2025-26. According to Crisil, a domestic rating agency, bank credit growth is expected to accelerate to 13% in FY26, up from 11% in FY25. This expansion is anticipated to be fueled by:
- Ongoing regulatory measures
- Increased consumer spending from tax reductions
- A favorable interest rate environment
However, analysts have warned that the growth of deposits needs careful monitoring. They also expressed concerns that global trade tensions may lead corporations to adopt a more cautious borrowing approach.
Retail Credit Set for Growth
Retail credit, which accounts for about one-third of total loans, is projected to grow by 13-14% in FY26, rising from 12% currently. This increase is expected to be supported by enhanced affordability due to lower interest rates, particularly in the mortgage sector, as reported by The Economic Times.
HDFC Bank’s Strategic Move
Global investment firm Goldman Sachs has reaffirmed its ‘buy’ recommendation for HDFC Bank, setting a target price of ₹2,087 per share. This comes after the bank’s decision to reduce its savings account interest rate by 25 basis points to 2.75% for balances below ₹50 lakh—the first reduction since June 2020. Goldman Sachs views this strategy as a reflection of the bank’s confidence in maintaining deposit growth, even with lower rates. This savings rate cut is projected to help alleviate margin pressures as the market enters a potential cycle of further rate reductions.
Retail Inflation Declines to Multi-Year Low
According to the latest data from the Ministry of Statistics and Programme Implementation (MoSPI), India’s retail inflation, based on the Consumer Price Index (CPI), registered at 3.34% annually in March. This figure marks a decrease from 3.61% in February and 4.85% during the same month last year. Following a 6.4% growth in the December quarter—the slowest since Q4FY23—economists are increasingly predicting that the RBI will opt for a rate cut in June.
March’s retail inflation figures, the lowest since August 2019, were primarily driven by seasonal corrections in food prices, despite some increases in fuel and core inflation. This latest data supports the central bank’s transition to a more accommodative monetary policy and reinforces expectations for further rate cuts in the upcoming months.
By keeping a close eye on these trends, investors can stay ahead in the dynamic landscape of Indian banking and finance.
