Shares of private sector banks like Axis Bank, ICICI Bank and HDFC Bank, witnessed a sharp decline in Tuesday’s trading session amid weak sentiment across Dalal Street.
Shares of ICICI Bank and Axis Bank fell more than 2% each on the NSE, while HDFC Bank’s stock price declined around 1%. Other banking stocks, including Kotak Mahindra Bank, were also trading in the red during the session.
Meanwhile, market benchmark indices Sensex and Nifty opened lower on Tuesday, led down by rising crude oil prices and continued hostilities between the US and Iran, which kept investor risk appetite subdued. The 30-share BSE Sensex fell 382.25 points to 75,750.56 in early trade, while the 50-share NSE Nifty declined 97.80 points to 23,681.80.
What’s behind the rally?
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, private banking stocks are experiencing a sharp decline primarily due to a combination of tightening liquidity, global macro headwinds, and structural margin pressure.
Srivastava further explained that global geopolitical tensions have pushed Brent crude oil prices near $95–$97 per barrel, reigniting domestic inflation fears and causing Indian sovereign bond yields to spike. Because PSU banks hold substantial portfolios of government securities (G-Secs) to fulfill Statutory Liquidity Ratio (SLR) requirements, rising yields drive bond prices lower, forcing banks to report significant mark-to-market (MTM) losses on their treasury books. Simultaneously, Foreign Institutional Investors (FIIs) are pulling out capital from rate-sensitive emerging market assets to seek safer global haven assets.
“Looking at recent quarterly financial trends, while core balance sheets remain robust and asset quality is at multi-year highs (with Gross NPAs at record lows), banks are grappling with Net Interest Margin (NIM) compression. Loan yields have re-priced downward following prior RBI rate adjustments, whereas deposit costs remain elevated due to intense competition for long-term deposits. Consequently, earnings growth in recent quarters was largely supported by lower credit provisioning rather than core net interest income expansion,” she said.
On the long-term investment prespective, she recommended investors holding high-quality PSU and private banking stocks remains structurally sound. Current price declines represent a tactical valuation correction driven by rate-cycle volatility rather than fundamental balance sheet distress.
“Multi-year low non-performing assets, strong capital adequacy ratios, and India’s broader credit expansion cycle provide a resilient foundation once global yields and oil prices stabilize,” she added.
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