Banking Stocks Rally to Record Highs as Policy Easing Spurs Fresh Optimism
Indian banking stocks surged to record levels on Monday, leading a robust market rebound as the Reserve Bank of India’s liquidity-supportive policies under Governor Sanjay Malhotra sparked widespread investor enthusiasm. The Bank Nifty index hit an all-time high of 55,961 on April 22, marking its sixth consecutive session of gains, with domestic lenders now emerging as the clear front-runners in India’s 2025 stock market recovery.
This bullish momentum is being largely attributed to a set of aggressive liquidity-boosting measures rolled out by the RBI in recent months, including back-to-back repo rate cuts, revised liquidity coverage norms, and targeted liquidity injections aimed at revitalizing credit growth. Banking shares, which account for nearly 22 percent of the Nifty 50, are now significantly contributing to the index’s upward trajectory amid an uncertain global environment defined by rising protectionism and tariff threats from the United States.
Highlights:
Bank Nifty hits record 55,961, extending a six-day rally.
Liquidity easing and rate cuts from RBI reinvigorate sentiment.
Banks emerge as key contributors to the Nifty’s 2,000-point recovery in April.
Investor focus turns to HDFC Bank, ICICI Bank, Axis Bank, and SBI.
Liquidity Coverage Ratio Tweak Unlocks Capital for Lending
One of the most impactful changes announced recently by the RBI involves a revision in the liquidity coverage ratio (LCR) framework, which now allows banks to allocate a smaller portion of their retail deposits to sovereign bond holdings. These bonds have historically served as a liquidity buffer under regulatory norms but are seen as relatively low-yielding.
This alteration is expected to improve LCRs by approximately 600 basis points, effectively freeing up nearly Rs 3 lakh crore in capital, which banks can now redirect into higher-yielding loan assets. According to market analysts, this capital unlock could deliver an immediate 1.4 to 2 percent boost to credit growth across the banking system.
Macquarie estimates a liquidity infusion of Rs 2.5–3 lakh crore, which could catalyze incremental credit issuance and offer 1.6 percentage points of uplift in sector-wide loan growth. Morgan Stanley echoes this sentiment, projecting a 1–2 percent increase in credit growth, accompanied by a 2–4 basis point improvement in net interest margins (NIMs) once the new measures take full effect.
Highlights:
LCR revision improves liquidity by 600 bps, unlocking Rs 3 lakh crore.
Credit growth may increase by 1.4%–2%, say analysts.
Margin expansion of 2–4 bps likely from deployable liquidity.
NBFCs such as Shriram Finance and Mahindra Finance to benefit alongside banks.
Governor Malhotra’s Strategy Drives Policy-Led Turnaround
Since assuming office in December 2024, Governor Sanjay Malhotra has taken a proactive stance in reversing the tightening bias of the previous regime. In just four months, the RBI has delivered two 25-basis-point repo rate cuts—in February and April 2025—and has implemented several unconventional monetary tools to address evolving liquidity concerns.
The central bank has injected Rs 7 lakh crore into the banking system through mechanisms such as open market operations (OMOs), variable rate repo auctions, and forex swaps. Moreover, risk weights for NBFCs and microfinance loans have been eased to encourage broader credit access and reduce capital adequacy stress.
This series of interventions reflects Malhotra’s intent to prioritize growth revival in the face of emerging global trade risks and a slowdown in domestic credit. These efforts are beginning to bear fruit, with a visible upturn in banking sector earnings, especially among private lenders.
Highlights:
RBI injected Rs 7 lakh crore since January 2025 via multiple tools.
Two repo rate cuts of 25 bps each support borrowing cost reduction.
Relaxed risk weights for NBFCs spur inclusive credit expansion.
Policy mix aims to counter weak credit and global trade uncertainty.
Private Banks Outperform Amid Earnings Recovery
Within the Bank Nifty, HDFC Bank, ICICI Bank, and Axis Bank have emerged as leading performers, riding on the back of improving margins, better-than-expected Q4 results, and lower funding costs. ICICI Bank, in particular, saw its margin rise by 16 basis points, far exceeding analyst expectations of a modest 4–5 bps gain.
According to Siddhartha Khemka of Motilal Oswal Financial Services, “ICICI Bank’s Q4 performance reflects early signs of monetary easing translating into margin support.” He anticipates a 15 percent long-term upside for the stock as lower funding costs and stronger balance sheet metrics come into play.
On the broader Nifty, the 2,000-point rebound seen since early April has been powered primarily by banking heavyweights. HDFC Bank alone contributed over 300 points, followed by ICICI Bank (195 points), Axis Bank (110 points), and State Bank of India (70 points), underscoring how central the banking sector has become to India’s market revival story in 2025.
Highlights:
ICICI Bank’s margins rose 16 bps, outperforming projections.
Analysts forecast 15% upside in banking leaders like ICICI.
HDFC Bank, ICICI Bank, Axis Bank, and SBI lead Nifty’s rally.
Banks account for bulk of April’s 2,000-point Nifty surge.
