RBI Decision Causes Bank Stock Prices to Fall - RBI Decision


Bank stocks prices of major banks such as the IndusInd Bank, SBI, and HDFC Bank fell by over 11% on the NSE (National Stock Exchange) yesterday on 5/4/2020. Part of the reason was due to weak investor sentiments that resulted after the RBI’s decision to close the CKP Cooperative Bank of Mumbai.
On the intra-day trade, the Nifty fell by 8.5% on the National Stock Exchange. Thus, it was also one of the top losers of the day on the stock exchange. Nifty50, in comparison, was down by 5.99% by 2;30 PM.

Banks like IndusInd and ICICI Bank both slid by 115 while Bandhan Bank went down by 10%. While Federal Bank slid down by 10.7 5, HDFC Bank went down by 8.4%. Punjab National Bank, Axis Bank, Bank of Baroda and the SBI all went down by 6.5% to 10% on the National Stock Exchange.

Meanwhile, Nifty Private Bank declined in its stock prices by 9% and the Nifty PSB index by 6.3%.
Apart from this, Non-Banking Financial Corporations or NBFCs seemed to be under a lot of pressure as well. NBFCs like Sriram Transport Finance, Cholamandalam Investment and Finance Company, Indiabulls Housing Finance, Bajaj Finserv and HDFC all went down by 5% to 10%.

Last Saturday, the license of CKP Cooperative Bank was cancelled by the RBI with effect from April 30, 2020. The reason given was that the bank’s weak financial position was hampering its day-to-day operations, and that the bank was unable to pay back its depositors due to financial instability.
 The RBI also said that there is no revival plan right now to merge this bank with another one, because there is no credible commitment from the bank’s leadership. The bank had additionally failed to keep the minimum capital deposit with the RBI at the rate of 9% along with reserves.

RBI, however, did assure depositors that 99% of them, or more, shall be their full deposits back from Deposit Insurance and Credit Guarantee Corporation.

Apart from the resultant weak investor sentiment after this action of the RBI, banking counters saw massive selling pressure. These were naturally based on the fears of NPAs or non-performing assets increasing due to the current lockdown.

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