Three prominent Indian banks have reported significant growth in advances, a development attributed to a 100-basis-point policy rate cut and supportive policy framework. This growth trend underscores the positive impact of monetary policy on the banking sector's lending activities, with market analysts predicting that banks and financials will lead the next phase of market growth.

Indian Bank Leads with Double-Digit Growth

Indian Bank emerged as a strong performer, recording a 13.00% year-on-year growth in advances, reaching Rs 6.22 lakh crore. The bank's deposit base also saw a healthy increase, growing by 12.00% to Rs 7.76 lakh crore.

South Indian Bank Shows Steady Progress

South Indian Bank demonstrated steady growth in both advances and deposits. The bank reported a 9.00% increase in advances, amounting to Rs 92,287 crore. Deposits at South Indian Bank grew by 9.70%, reaching Rs 1.15 lakh crore.

Karur Vysya Bank Outperforms with Impressive Growth

Karur Vysya Bank emerged as the standout performer among the three, showcasing the strongest growth figures. The bank reported a remarkable 15.50% growth in advances, pushing its total to Rs 92,719 crore. Equally impressive was the bank's deposit growth, which increased by 15.30% to reach Rs 1.10 lakh crore.

Impact of Policy Support on Banking Sector

The significant growth in advances across these banks is largely attributed to a 100-basis-point policy rate cut and a supportive framework implemented by the Reserve Bank of India (RBI). Despite no further rate cuts in the recent RBI policy, the sector benefits from increased loan limits, IPO funding, and M&A financing capabilities.

Market analyst Dharmesh Kant predicts that banks and financials will lead the next phase of market growth. Both private and public sector banks are taking aggressive positions, with structural conditions favoring Net Interest Margin (NIM) consolidation and Net Interest Income (NII) growth.

The robust growth in both advances and deposits across these banks indicates a positive trend in the Indian banking sector. As these financial institutions continue to expand their loan books and deposit bases, it reflects growing consumer and business confidence in the banking system.

Additional Factors Influencing the Sector

The policy environment particularly benefits public sector banks with new management willing to take calculated risks. Risk-weighted asset cushions on home loans and MSM segments further strengthen the sector.

While the banking sector shows promising growth, potential government tax cuts and dearness allowance hikes could strain fiscal spending and affect infrastructure growth. Broader macroeconomic factors require monitoring as fiscal pressures may impact corporate earnings.

In related sectors, fertilizer companies like GNFC and Chambal Fertilisers are expected to benefit from healthy monsoon conditions, which could indirectly support agricultural lending in the banking sector.

The varied growth rates among the banks highlight the competitive nature of the Indian banking sector, with each institution leveraging the favorable policy environment to drive its growth strategy.

The Nifty Bank index surged over 650 points on Wednesday, crossing the 55,000 level and approaching 55,300. This significant rally followed the Reserve Bank of India's (RBI) announcement of multiple banking sector measures.

Key RBI Measures

• Implementation of Expected Credit Loss framework for all banks from April 2027, with a transition period until March 2031
• Revised Basel-III Capital Adequacy Norms
• Lower risk weights for MSMEs and residential real estate, including home loans
• Enabling Indian banks to finance corporate acquisitions
• Removing regulatory ceiling on lending against listed debt securities
• Increasing lending limits against shares from ₹20 lakh to ₹1 crore
• Raising IPO financing limits from ₹10 lakh to ₹25 lakh per person

Bank Performance

The banking sector rally lifted major constituents, with several banks showing significant gains:

*Specific percentage not provided

However, some banks experienced declines:

• IDFC First Bank
• IndusInd Bank
• State Bank of India (SBI)

Market Impact

The Nifty 50 index traded near 24,800, reflecting the positive sentiment in the broader market. The Nifty Bank index's surge past the 55,000 mark underscores the significant impact of the RBI's policy measures on the banking sector.

RBI's Economic Outlook

While maintaining the repo rate at 5.50% and keeping a neutral stance, RBI Governor Sanjay Malhotra announced revisions to key economic forecasts:

1. Lowered inflation projections
2. Raised GDP growth projections

The updated Consumer Price Index (CPI) inflation projections are:

• Q2 and Q3: 1.80%
• Q4: 4.00%
• Q1 next year: 4.50%

Policy Stance and Future Outlook

Despite seeing potential for supporting growth, the Monetary Policy Committee remains cautious. Governor Malhotra stated, "Policy space has opened up for supporting growth, but the committee considers it prudent to wait before further rate cuts."

Proposed Changes in Banking Regulations

The RBI also proposed introducing risk-based insurance premiums for banks, aiming to align insurance costs with the risk profile of individual banks. This proposal could potentially influence banks' operational strategies and financial planning.

The RBI's comprehensive policy measures and economic projections reflect a balanced approach to monetary policy, aimed at supporting growth while maintaining financial stability. As the banking sector adapts to these changes, investors and analysts will closely monitor individual bank performances and the overall impact on the financial landscape.