Will RBI’s CRR hike to 99% hit HDFC, SBI and other bank stocks? Here’s what Jefferies says

ETMarkets.com

In a notification on Friday, the RBI said banks will have to maintain a minimum daily balance equivalent to 99% of the CRR requirement from the fortnight beginning October 16, up from 90% so far.

CRR is the portion of banks’ deposits that must be maintained with the RBI without earning any interest. The ratio currently stands at 3%, meaning banks must keep Rs 3 with the RBI for every Rs 100 in deposits. Until now, banks had the operational flexibility to maintain just 90% of the required CRR balance on a daily basis without facing penal action. The RBI has now withdrawn this flexibility as it seeks to curb liquidity in the banking system.

“On a review of the current liquidity conditions, it has been decided to increase the minimum daily maintenance of the CRR from 90% of the requirement to 99% effective from the fortnight beginning October 16, 2026,” RBI said.

Also read | RBI raises average CRR maintenance requirement for banks

Jefferies explains impact on banks

In line with the change in the Monetary Policy Committee’s (MPC) stance to ‘calibrated tightening’, the RBI raised the minimum daily CRR maintenance requirement from 90% to 99%, Jefferies said. Banks must maintain the full 3% CRR requirement against their net demand and time liabilities (NDTL) on average over the reporting fortnight.

At 100% CRR maintenance, banks would hold Rs 8 trillion in CRR. If the higher daily maintenance requirement lifts balances by 5-10%, it could drain Rs 400-800 billion of liquidity from the banking system and add 1-2 basis points to the cost of funds (CoF), the brokerage estimated.

Jefferies said the impact on net interest margins (NIMs) would be limited and banks may be able to pass on the higher costs to borrowers. “In a rising rate period, we prefer banks over NBFCs,” it said.

Also read |RBI rate hike done. Now what’s ahead for bank stocks? Jefferies, other brokerages weigh in

Jefferies top banking picks

Jefferies has a ‘Buy’ rating on eight private-sector lenders: HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, IDFC First Bank, Bandhan Bank and AU Small Finance Bank. It sees the highest upside potential in Bandhan Bank at 47%.

Among public-sector banks, Jefferies has ‘Buy’ ratings on State Bank of India (SBI) and Punjab National Bank (PNB), with upside potential of 39% and 14%, respectively. It has a ‘Hold’ rating on Bank of Baroda, whose target price implies 17% upside.