Investors in banking stocks turned nervous last week amid fears of earnings taking a hit from another repo rate cut.
Among banks, SBI was the worst hit — down 11.15 per cent — last week. This is because public sector banks already offer significantly lower rates on deposits. The repo rate cut on Friday has only made matters worse. That apart, with the new repo rate-linked loans, loan rates are set to reset faster for the bank. Hence, not passing on the repo rate cut to depositors will still leave a dent on the earnings.
But to keep a check on earnings volatility, the bank has launched repo rate-linked deposits. However, it may not entirely mitigate the risk of lower earnings. Besides, the cut in growth forecast by the RBI was not taken positively by the investors as lower growth, coupled with the accommodative stance being maintained, is indicative of more cuts in the upcoming meetings.
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