Bank stocks lag on concerns over treasury loss and slower growth

Higher interest rate, though, should help improve short-term margins and spread

The Reserve Bank of India’s (RBI’s) decision to raise policy rates by 90 basis points (bps) within two months has sent out a clear signal that it is trying to rein in inflation, which is well above its target range. It is likely to hike rates again and take other actions, such as raising the cash reserve ratio (CRR), to reduce liquidity.

The impact of the accelerated hikes could be somewhat unusual. Banks and non-banking financial companies (NBFCs) have started passing on the rate hikes, but will raise deposit rates more gradually than the rates at which they offer credit. Banks