Banking stocks stole the spotlight on April 15, 2025, as the broader markets continued their winning streak, driven by a mix of interest rate cuts and improved investor sentiment. IndusInd Bank emerged as the standout performer, soaring 6.84% on the BSE, while other private sector lenders followed suit. Axis Bank jumped 4.18%, HDFC Bank rose 3.23%, and ICICI Bank gained 2.86%. Public sector banks also enjoyed healthy gains; Canara Bank increased by 2.40%, Yes Bank climbed 2.10%, and State Bank of India advanced 1.23%. Bank of Baroda added 1.10%, Federal Bank rose 0.84%, and Kotak Mahindra Bank edged up 0.44%. The BSE Bankex index closed 2.51% higher at 59,866.95.
Vinod Nair, head of research at Geojit Financial Services, noted, "Banking stocks benefited from deposit rate cuts." This rally in bank shares coincided with strong gains in the broader market, as the BSE Sensex surged 1,577.63 points, or 2.10%, to end the day at 76,734.89. Meanwhile, the NSE Nifty climbed 500 points, or 2.19%, to close at 23,328.55.
In a move to make lending cheaper, the State Bank of India (SBI), the country's largest lender, announced a 25-basis point cut in its repo linked lending rate (RLLR), bringing it down to 8.25%. This decision followed the Reserve Bank of India’s (RBI) recent reduction of the repo rate by 25 basis points, marking the second consecutive cut. SBI also trimmed its deposit rates by 10 to 25 basis points, effective from April 15.
In line with these trends, private sector giant HDFC Bank lowered its savings account interest rate by 25 basis points to 2.75%—the lowest among its peers. Additionally, Bank of India scrapped its 400-day special deposit scheme that offered 7.3% and slashed home loan rates by 25 basis points, providing relief to both new and existing borrowers.
As interest rates decline, the banking sector appears poised to benefit from improving loan demand and better credit offtake in the coming quarters. Shares of banking players were indeed in the spotlight on this day, with major heavyweights such as HDFC Bank, ICICI Bank, IndusInd Bank, and Axis Bank leading gains with their impressive 3-7% surges.
The recent cuts in deposit and lending rates have been spurred by the RBI's decision to slash the repo rate by 25 basis points during its latest monetary policy meeting. This marks a cumulative reduction of half a percentage point over two back-to-back policy meetings. With this move, the central bank has effectively given commercial lenders the room to trim their deposit and lending rates as well, thereby boosting liquidity in the markets.
The Bank Nifty index, a gauge to measure the performance of banking stocks, jumped 2.5% in trade on April 15, reflecting the positive sentiment across the sector. All constituents of the index traded within the green, contributing to a strong upward movement.
Some marquee lenders that have recently reduced their lending rates include State Bank of India, HDFC Bank, Bank of India, Yes Bank, and Canara Bank, with most cutting rates by 5-25 basis points. This trend is expected to further enhance the attractiveness of loans for consumers, potentially leading to increased borrowing activity.
Looking ahead, global brokerage firm Goldman Sachs has painted a positive picture for Indian banks. They believe that the "muddle through" scenario for these institutions may soon be coming to an end, as early signs of improvement in asset quality and operating profitability emerge. This optimistic outlook persists despite the firm penciling in an additional 100 basis points of rate cuts.
Goldman Sachs also anticipates that slippages will begin moderating from the second half of FY26, leading to a corresponding decline in credit costs, in line with their revised, lower credit cost assumptions. They noted, "In our view, asset quality is approaching an inflection point, with early indicators such as bureau data showing signs of stabilization across most loan segments, particularly in the unsecured category." However, they did caution that business-banking loans for non-banking financial companies (NBFCs) continue to face pressure.
The concerted efforts of both the Reserve Bank of India and commercial banks to adjust interest rates reflect a strategic response to current economic conditions. The banking sector's ability to adapt to these changes will be crucial in the coming months, as it seeks to stimulate growth and support borrowers amid a shifting financial landscape.
As the markets react positively to these developments, investors are keenly watching how these changes will impact the overall economy. The interplay between interest rates, lending, and consumer demand will be pivotal in shaping the financial environment in the near future.
In summary, the banking sector is experiencing a significant upswing, driven by recent interest rate cuts and a favorable market sentiment. With major banks leading the charge, the outlook remains optimistic as the industry adapts to new economic realities.
