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Bank, realty stocks fall after RBI leaves rates on hold

Last updated on: October 30, 2012 18:16 IST

Interest-rate sensitive banking and realty stocks today fell sharply by up to 6 per cent 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 per cent, while ICICI Bank fell by 2.21 per cent.

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

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

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 per cent to infuse additional liquidity of Rs 17,500 crore (Rs 175 billion) into the financial system. CRR now stands at 4.25 per cent.

"RBI increased the amount of provisioning against restructured loans to 2.75 per cent from 2 per cent, 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 per cent, D B Realty shed 3.72 per cent, DLF (2.21 per cent) and Unitech (2.90 per cent).

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

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

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 and 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".

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