Mumbai, Oct 4 (IANS): Bank stocks slid dragging the Sensex over 440 points lower on Friday as investors reacted to the RBI's cut in the countries economic growth forecast to 6.1 per cent for 2019-20 from 6.90 earlier.
"..real GDP growth for 2019-20 is revised downwards from 6.9 per cent in the August policy to 6.1 per cent - 5.3 per cent in Q2:2019-20," the RBI said.
Federal Bank, Kotak Bank, ICICI Bank and HDFC Bank were trading over 2 to 4 per cent lower on the Nifty. As for the benchmark Sensex, at 3.14 p.m., it fell by 440.28 points to 37,756.12. The broader Nifty declined by 146.30 to 11,167.70.
The Reserve Bank slashed the lending rate by 25 basis points for the fifth time in 2019. The repo rate (one basis point is one-hundredth of a per cent) now stands at 5.15 per cent from 5.40 per cent.
"RBI has been asking banking system to offer loans at a level that reflects the benchmark cut, but the system is reluctant to pass on, due to risk aversion. It is a dichotomy that the one needs money does not get it and the one who is offered does not need it!," said Motilal Oswal, Managing Director, Motilal Oswal Financial Services.
In a unanimous decision by the committee all the members of the MPC voted to reduce the policy repo rate and to continue with the accommodative stance of monetary policy.
"Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das voted to reduce the repo rate by 25 basis points," the RBI statement said. However, Ravindra H. Dholakia voted to reduce the repo rate by 40 basis points.
The central banks took into account the high frequency indicators which suggested that services sector activity weakened in July-August. Indicators of rural demand, viz., tractor and motorcycles sales, contracted.
Besides, Industrial activity, measured by the index of industrial production (IIP), weakened in July 2019 (y-o-y), weighed down mainly by moderation in manufacturing.
The decision of a 25 bps rate cut came as the domestic product (GDP) growth rate slumped to 5 per cent in Q1:2019-20, extending a sequential deceleration to the fifth consecutive quarter.