Banks dip on fund selling

Bank stocks have been witnessing some selling pressure in the last couple of days. According to market sources, a few big institutions have been selling banking sector stocks (and also reduced their open interest positions in F&O segment), on expectation that Reserve Bank of India might increase cash reserve ratio further to suck out excess liquidity in the banking system. According to them, banks are already grappling with high deposit and lending rates with flush liq uidity and stagnant credit growth.

The RBI will undertake second quarterly review of the monetary policy on October 30.

The RBI has been raising CRR since December 2006 and currently the rates rule at seven per cent, as its interventions in the foreign exchange market resulted in infusion of rupee liquidity.
Burden

According to banking analysts, if RBI hikes CRR, banks may not be in a position to pass on the opportunity cost of funds thus mobilised on to customers and may have to bear the burden themselves. The domestic credit growth already remains subdued.

The BSE Bankex fell 2.58 per cent in a week’s time (with selling happening on Thursday and Friday), as against the BSE Sensex, which gained 2.79 per cent.