Banking stocks in the country rose on Monday in the morning trade following a cut in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI) on Friday.

The reduction is larger than expected as the market analysts believed that the central bank might reduce the CRR by 50 bps. The 75 bps cut would increase the liquidity by Rs. 48,000 in the country’s economy. The additional funds in the economy would help the economy in the coming motnsh as the liquidity position is expected to become tighter in mid-March due to advance tax outflows.

Following the rate cut, the banking stocks, led by the Sate Bank of India (SBI) attracted investors and increased as much as 4 per cent n the morning trade at the Bombay Stock Exchange (BSE).

The shares of SBI rose 3.76 per cent to Rs. 2,306, ICICI back stock increased 3.13 per cent to Rs. 943.40 on the BSE. Bank of India, IDBI Bank, Axis Bank and PNB increased 2 per cent. After the impressive growth in shares, the BSE Bankex index was 1.29 per cent higher at 12,242 at the time of reporting.

The RBI governor D Subbarao has already indicated that the central bank is considering a reversal of the monetary policy as the inflation is falling and the high interest rates have affected economic growth in the country.