Bank shares rally on CRR cut in early trade at the bourses

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Led by SBI, bank stocks on Monday rallied on the bourses in the morning trade following the cash reserve ratio cut by the Reserve Bank on Friday.

Cheering the rate cut, financial stocks attracted investors and surged by as much as 4 per cent in the morning trade.

SBI, the country's biggest lender, gained 3.76 per cent to Rs 2,306, while ICICI Bank was up 3.13 per cent to Rs 943.40 on the BSE.

Bank of India, IDBI Bank, Axis Bank and PNB were trading higher by up to 2 per cent. Led by gains in these stocks, the BSE Bankex index was quoting 1.29 per cent higher at 12,242 at 1035 hours.

In a surprise move, RBI on Friday cut the cash reserve ratio (CRR) by 0.75 percentage point to infuse liquidity in the system.

Brokerage firm Angel Broking said in a report, "Most market participants were expecting a 50 bps CRR cut on the monetary policy due on March 15. By announcing the CRR cut as of Friday evening, the RBI has ensured immediate injection of liquidity into the system (effective March 10, 2012)."

The 75 bps reduction in CRR is positive for banks, it said. Meanwhile, in the broader market, the BSE benchmark Sensex was trading over 130 points higher at 17,633.28 at 11.14 am.