RBI’s ₹60,000 crore liquidity boost is a timely move: BNP Paribas analyst

Santanu Chakrabarti, India Analyst-Banking, Financial Services and Insurance (BFSI) at BNP Paribas, described the Reserve Bank of India’s (RBI) ₹60,000 crore liquidity infusion as a timely and positive move, signalling a shift in policy.

The RBI announced steps on January 27 to manage the flow of money in the market. The central bank plans to buy bonds worth ₹60,000 crore through Open Market Operations (OMO). This will happen in three parts of ₹20,000 crore each on January 30, February 13, and February 20.

Chakrabarti explained that the liquidity shortfall was largely due to the RBI’s dollar sales. While this liquidity boost may not immediately address the banks’ credit appetite, it is a crucial step in easing financial pressures.

Also Read: Nifty Bank surges over 1,000 points on ₹1.5 lakh crore liquidity boost from the RBI

He also highlighted the strong performance of ICICI Bank and HDFC Bank in deposit mobilisation, despite tight liquidity conditions, crediting their robust liability franchises as key to their success.

Pranav Gundlapalle, Senior Analyst-India Financials at Bernstein, who also joined the discussion, shared his outlook by projecting a 50-basis-point rate cut by the RBI in the first half of the year. He stated that while liquidity measures and potential rate cuts might initially hurt banks by compressing net interest margins (NIMs), they would ultimately support growth in credit demand and consumption over the long term.

In terms of investment preferences, Gundlapalle’s top picks among large banks and NBFCs include HDFC Bank, followed by IndusInd Bank, ICICI Bank, Axis Bank, SBI, and Kotak Mahindra Bank. He advised caution on pure consumer lenders like SBI Cards or Bajaj, preferring to hold off on investments in this segment.

For the entire discussion, watch the accompanying video