Bank, realty stocks tumble after RBI leaves rates on hold

Banking stocks witnessed the steepest hit, with SBI plunging 4.43 percent, while ICICI Bank fell by 2.21 percent.

Updated: Oct 30, 2012, 18:52 PM IST

Mumbai: Interest-rate sensitive banking and realty stocks Tuesday fell sharply by up to 6 percent after RBI kept key lending rate unchanged, hiked loan provisioning rules, dashing investor hopes of boost in festival demand.

Banking stocks witnessed the steepest hit, with SBI plunging 4.43 percent, while ICICI Bank fell by 2.21 percent.

Among others, Canara Bank plummeted 6.05 percent, Bank of Baroda (4.64 percent) and PNB (3.60 percent) -- as experts said the provision for restructured standard accounts being raised to 2.75 percent from 2 percent will hit state-owned banks harder.

Following the losses in these stocks, the BSE banking index ended at 12,870.61, down 2.35 percent.

Marketmen said investors ignored RBI move to reduce the cash reserve ratio ? the percentage of deposits banks keep with the Reserve Bank - by 0.25 percent to infuse additional liquidity of Rs 17,500 crore into the financial system. CRR now stands at 4.25 percent.

"RBI increased the amount of provisioning against restructured loans to 2.75 percent from 2 percent, effective immediately. All this did a major damage to the banking stocks, especially public sector banks," Inventure Growth & Securities CMD Nagji K Rita said.

From the realty pack, shares of Indiabulls Real Estate dropped 3.90 percent, D B Realty shed 3.72 percent, DLF (2.21 percent) and Unitech (2.90 percent).

The realty index was second worst hit in the 13-sectoral indices on the BSE, losing 2.28 percent to 1,746.63.

Auto stocks too, saw heavy selling pressure. Tata Motors skidded 3.52 percent, while Hero MotoCorp was down 1.77 percent and Mahindra & Mahindra lost 1.60 percent.

In the broader market, the Sensex plunged 204.97 points to close at 18,430.85.

Experts said RBI seems to have higher priority for containing inflation first, and inflation has already been projected to be higher in near term, following the fuel hike and rising international commodities. So, this is likely to impact the rate-sensitive sectors like banks, realty and automobiles, they said.

"RBI's downward revision of growth estimate was on expected line. However, it also has upped its March-end 2012 inflation projection. Thus, it has taken a view that growth inflation mix possibly stood where it was explaining no change in rates," Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd, said.

According to Dinesh Thakkar, Chairman & Managing Director, Angel Broking: "By maintaining the repo rate, the RBI has reiterated its stance on inflation management since upside risks to inflation continue to persist".