The BSE's banking sector index Bankex was up 0.71% at 8,078.13. It outperformed the BSE Sensex, which was down 0.15% at 14,853.90
India's biggest bank in terms of branch network State Bank of India (SBI) rose 4.24% as SBI's advance tax payment reportedly rose 61.09% to Rs 1,068 crore in Q1 June 2009 over Q1 June 2008.
India's second largest private sector bank by operating income HDFC Bank gained 0.26%. HDFC Bank's advance tax payment rose 16.28% to Rs 250 crore in Q1 June 2009 over Q1 June 2008.
However, India's largest private sector bank by net profit ICICI Bank was down 1.45% as its American depository receipt (ADR) fell 4.24% on Monday, 15 June 2009. ICICI Bank paid 7.65% higher advance tax to Rs 366 crore in Q1 June 2009 over Q1 June 2008.
Other bank shares also logged gains as higher advance tax paid by them in the first installment raised expectations of robust Q1 June 2009 results from the banking sector.
Bank of India (up 2.05%), Dena Bank (up 2.29%), Bank of Baroda (up 3.67%), Canara Bank (up 4.21%), Yes bank (up 0.39%), Kotak Mahindra Bank (up 2.30%), IndusInd Bank (up 8.55%), Punjab National Bank (up 2.50%), Axis Bank (up 3.04%), and Vijaya Bank (up 2.11%), rose
IndusInd Bank paid 122% higher advance tax to Rs 20 crore, Dena Bank paid 75% higher advance tax to Rs 35 crore and YES Bank saw 42% increase in advance tax to Rs 27 crore.
Successive interest rate cuts by the Reserve Bank of India and consequent downward movement in rates on government securities are attributed as reason for banks to garner good profits and thus pay higher taxes, which is contrary to the case last year. Last year, interest rates remained high, leading to fund crunch and tightness in credit markets.
The BSE Bankex outperformed the market over the past one month till 15 June 2009, rising 25.81% as compared to the Sensex's return of 22.20%. It had also outperformed the market in the past one quarter, surging 101.85% as compared to the Sensex's return of 69.88%.
As per recent reports, the government may cut interest rates on small savings schemes which currently yield 8% by 50 to 75 basis points. A rate cut in the small savings scheme rate will allow banks to bring down their lending rates.
Interest rates in India are falling thanks to ample liquidity in the banking system, low headline inflation and a loose monetary policy stance of the Reserve Bank of India (RBI).
Finance minister Pranab Mukherjee on 10 June 2009 said banks should provide credit at reasonable rates to spur growth, saying cuts in official rates by the Reserve Bank of India had not been passed on.
India's largest bank by net profit and branch network State Bank of India announced an across-the-board 25 basis point cut in deposit rates on Saturday, 13 June 2009. The rate cut came in effect from 15 June 2009.