Repo Rate: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 5.25% in line with market expectations at its February 2026 meeting. The committee, led by Governor Sanjay Malhotra, unanimously decided to keep the repo rate unchanged and maintain a neutral stance. While some markets were expecting a small rate cut, the RBI chose a cautious approach given global uncertainties and future inflation risks.
Immediate Reactions from Banking Stocks
Immediately after the policy announcement, banking stocks witnessed volatility. The Bank Nifty slipped by approximately 0.50% to 0.70% in the opening session, largely due to disappointment among investors betting on a rate cut.
However, buying returned in large private sector banks, particularly HDFC and ICICI Bank, in the second half of the session, helped the market recover. In contrast, shares of public sector banks (PSU Banks) and some smaller NBFCs witnessed selling pressure as the lack of a rate cut dashed expectations of an immediate reduction in their cost of funds.
Impact on Interest Margin (NIM) and Loan Demand
This pause by the RBI will have a direct impact on banks’ earnings:
Margin Stability
Stabilizing rates will help banks maintain their net interest margin (NIM). If rates were to fall, banks would have to immediately reduce interest rates on their old loans, while reducing interest rates on deposits would take time, putting pressure on margins.
Relief for MSMEs and Real Estate
The RBI has increased the limit for unsecured loans for the MSME sector from ₹10 lakh to ₹20 lakh and allowed banks to invest in REITs. These steps are likely to increase banks’ loan portfolios, which is positive for banking stocks in the long term.
Are rates now at their peak
Market analysts believe that the current repo rate of 5.25% could be the highest level or terminal rate of this cycle. The RBI has clarified that the impact of the total 125 basis point rate cut implemented in 2025 is still slowly percolating into the economy. Bank management will now focus more on increasing deposits and improving asset quality, as liquidity conditions may remain somewhat tight in the coming months.
What’s special for investors
The message for investors in the banking sector is clear: the focus should now be on banks’ fundamentals and earnings growth, rather than solely on interest rates. Since the RBI has maintained a ‘neutral’ stance, the possibility of a rate cut remains at the next meeting in April 2026.
Short-term investors should be prepared for volatility, while long-term investors should look at large private banks whose digital exposure and asset quality are best suited in this stable interest rate environment.