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Impacts of RBI’s Policy on Bank Nifty & Bank Sector


RBI Policy & its effect on Nse Market during day trading

RBI Policy

06 JUNE 2019:
RBI CUTS INTEREST RATE BY 25 BASIS POINTS TO 5.75%

CRR 4.00% v/s 4.00%
Intr.Rate 5.75% v/s 6.00%
Revs.Repo 5.50% v/s 5.75%


Generally, the governor of RBI announces the policies sharp at Eleven am, in the NSE on a working day. Any changes in the policies have a huge impact on the Banking stocks which makes the Index of Bank Nifty quite volatile. Within two to three minutes five hundred points go either up or down. A1 Intraday Tips is a provider of Best share tips and gives Reliable Bank Nifty tips which is more than ninety percent accurate. There’s a huge impact of the policies of RBI on the trading of free stock tips. When the Governor of RBI announces the policies of RBI many a time the trend of the market changes. Also, the market moves higher or lower on the basis of the expectations from the changes which might come after the announcement of the policies. RBI employs the below mentioned tools. The changes which come after the announcement of policies on Banking stocks, auto stocks and realty.


Bank Rate

Bank Rate can be defined as the rate at which RBI (Reserve Bank Of India ) gives the freedom of finance (lend) to the commercial banks. Bank Rate is one of the best tools that the RBI uses for making short term changes in the economy. An upward revision or changes in the bank rate indicates that the banks also will have to increase the deposit rates and the base rate. Therefore, the revision in the bank rates brings changes in the rates of interest on your deposits also which might either go up or down.

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CRR

CRR can be defined as the cash reserve ratio, which is actually the ratio of the cash deposits which the banks need to deposit in the form of cash with an RBI. This amount of cash, the banks deposit with the currency chests of RBI. This ratio is called Cash Reserve Ratio. Therefore, as the deposits of the bank increase by hundred rupees and if the CRR is six percent, the banks will have to hold six percent with an RBI and it can use just ninety four rupees for the purpose of investing, lending and credit. Thus, higher the CRR, lower the amount which banks can use for the purpose of lending and investing. Therefore, CRR can also be defined as a tool which is employed by RBI for controlling credit creation and liquidity in the banking system.

SLR

SLR which is also known as Statutory Liquidity Ratio is actually the minimum proportion of the net demand as well as time liabilities as liquid assets in different forms such as gold, cash and unencumbered approved securities. The ratio of the total liquid assets to the demand and time liabilities is called SLR. RBI has been empowered for increasing this ratio up to forty percent. A rise in SLR also restricts the leverage of banks for pumping more and more money in the economy. Thus, the major changes in the SLR impact the credit creation of the economy.

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Repo rate and Reverse Repo rate

Repo rate can be defined as the rate at which RBI lends short term money to banks against any securities. When the Repo rate raises the borrowing from RBI becomes even more expensive. Thus, in that case RBI makes it even more expensive for the commercial banks to borrow money; it also increases the Repo Rate. In the same way, if it wishes to make it even cheaper for the banks to borrow money, it decreases the Repo Rate and Reserve Repo Rate. The commercial banks employ this as a tool when they realize a need that their excess funds are not being used and they are not able to invest anywhere for good returns. A rise in the Reverse Repo Rate means that RBI borrows money from banks at a high rate of interest.

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