REASONS FOR FALLING BANKING STOCKS

1. New loans would have become cheaper had the RBI cut rates. That would have translated into higher credit off take and resulting more business for banks. But as rates are not lowered by RBI so loans will remain costly which leads to fall in banking stocks.

2. Rate of growth of bank deposits fall compared to last year. This has prevented banks to cut deposit rates remaining them at elevated levels. As cost of funds remain high so banking stocks fall.

3. Liquidity crunch has prevented banks from passing the benefits of previous rate cuts to customers. According to SBI Chairman, liquidity situation was not comfortable forcing banks to borrow 3 month money at 9.5%.

4. The RBI guidance continues to prioritize inflation against growth. This means there is no guarantee that the central bank would cut rates in next review.

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