Bank Nifty hits record high as RBI’s CRR cut seen positive for banks’ margins. Where’s the index headed next?

Bank Nifty index hit a record high on Monday, surpassing the 57,000 level for the first time, led by a strong rally in banking stocks, fuelled by the Reserve Bank of India’s Cash Reserve Ratio (CRR) cut. The index hit a life-time high of 57,049.50.

Kotak Mahindra Bank, AU Small Finance Bank, Canara Bank, Axis Bank, Punjab National Bank, were among the top gainers among Bank Nifty constituents, gaining over 1-2%, while only ICICI Bank shares were trading in the red.

The surge in the banking stocks came after the central bank reduced the CRR by 100 (basis points) bps to 3% of net demand and time liabilities (NDTL), which is estimated to infuse primary liquidity of ₹2.5 lakh crore into the banking system, helping reduce cost of funding for banks and resulting in faster policy transmission.

Adding to the ongoing easing measures, the RBI has also infused over ₹7 lakh crore into the banking system through OMO purchases in the last five months.

Impact of CRR Cut on Banks

Assuming 11.5% - 12.0% credit growth in FY26, Elara Securities’ calculation suggests a positive impact of 4-5 bps on net interest margin (NIM) for banks this financial year with the benefit getting more pronounced from FY27.

“A 100 bps CRR cut may help the RBI to manage liquidity tightness that is likely to arise from a possible unwinding of RBI’s short position in FX forward book of $52 billion. The lowering of CRR should also aid in transmission to lending rates. Data indicates weighted average lending rate (WALR) on fresh rupee loans and outstanding rupee loans have declined by 6 bps and 17 bps, respectively, during February-April 2025, when the repo rate cut of 50 bps was undertaken and ₹9.5 lakh crore worth of durable liquidity was injected (starting January 2025),” Garima Kapoor, Economist at Elara Securities said.

Seshadri Sen, Head Of Research And Strategist at Emkay Global Financial Services Ltd said that the CRR cut, though delayed, will help transmission and propensity to lend.

“This helps push up M3 growth, which is the biggest factor in driving deposit growth. Higher deposit growth gives banks more psychological belief and should help their propensity to lend. We believe the transmission will be felt mostly through the consumption cycle. Banks are far better geared to lend to this segment and will focus here to quickly ramp up loan growth,” Sen said.

According to JM Financial, the cumulative 100 bps of repo rate cuts should lead to 20-40 bps of NIMs cuts for banks depending upon respective loan mix, funding mix and maturity profile of TDs. However, the CRR cut of 100 bps should lead to ~7-8 bps of positive impact on NIMs which should partially cushion this negative impact coming out of repo rate cuts.

“Hence, this CRR cut should cushion ~20%-30% of the total negative impact on NIMs coming out of repo rate cuts,” JM Financial said.

JM Financial’s top picks in the banking sector are Axis Bank, ICICI Bank, State Bank of India (SBI), DCB Bank.

Bank Nifty Technical Outlook

After consolidating for over a month, the Bank Nifty index has resumed its primary uptrend with a decisive range breakout. The interim resistance is seen near 57,500. On Friday, Bank Nifty index came out of its sideways zone, giving an upward breakout of its rounding pattern, forming a bullish candle, supported by rising averages and positive indicators signaling an up move to continue.

“During the consolidation phase, the Bank Nifty index consistently held above the 20-DEMA, and with this breakout, it has now entered uncharted territory. Given the strength of the breakout and bullish candlestick formation, the uptrend is expected to continue. The next potential target lies around 58,500, the golden retracement level from the recent range,” said Angel One.

On the downside, the previous resistance zone of 56,000 – 55,800 is likely to act as strong support. The brokerage firm advises traders to maintain a positive bias and use dips as buying opportunities.

According to SBI Securities, the zone of 56,900 - 57,000 will be the immediate hurdle for the index, while any sustainable move above the level of 57,000 will lead to a sharp rally upto the level of 57,500, in the short-term. While, on the downside, the zone of 56,200 - 56,100 will act as immediate support for the index.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.