The decision to cut the interest rate under Marginal Standing Facility (MSF) by 50 bps by the Reserve Bank of India to ease liquidity for banks sent the bank stocks zooming in the morning trade today.

MSF is a facility under which banks make short-term borrowing and is aimed at easing liquidity. This is the second time the apex bank had cut the MSF interest rate after new RBI Governor Raghuram Rajan took charge. RBI had last month cut the MSF interest rates by 75 bps to 9.5 per cent.

Term deposit rates

While it is expected that banks may wait for RBI’s monetary policy review later this month to decide on reducing the deposit rates, the PSU bank Oriental Bank of Commerce, taking cues from the RBI move, had last night itself announced 0.25 per cent cut in interest rates on term deposits.

In a communication to the stock exchanges, the bank said that the interest rates on term deposits (Rs 1 crore & above) with maturity of 180 days to less than two years were cut by 25 bps i.e. from 9.25 per cent to 9 per cent with effect from October 8 (today).

The decision on MSF interest rates had an electrifying effect on the bank counters when the market opened today with the CNX Bank Nifty rocketing by 310 points with some of the private sector banks posting major gains.

YES Bank was up by Rs 23.40 at Rs 338.95, IndusInd Bank gained Rs 25.25 at Rs 422.45, Kotak Mahindra Bank was up by Rs 24.25 at Rs 711, ICICI Bank gained Rs 30.15 at Rs 946.35, Axis Bank gained Rs 37.55 to trade at Rs 1,109.40 and HDFC Bank was up by Rs 14.85 at Rs 649.15.

Among the PSU banks, SBI gained Rs 32.80 at Rs 1,665.85, BoB was trading at Rs 532, a gain of Rs 14.45 and PNB gained Rs 12 to trade at Rs 479.40.

(This article was published on October 8, 2013)
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