Bank Nifty Falls for Third Straight Session, Slips Below 57,000 as Axis Bank, ICICI Bank Lead Losses

Bank Nifty fell for the third session in a row on Tuesday, September 8, slipping below 57,000 as selling picked up in large private lenders. At 12 pm, the index was down 0.4% at 56,865.85. Axis Bank and ICICI Bank were the biggest losers in the index, down 1.8% and 1.7%, while Union Bank of India and HDFC Bank fell 1.2% and 0.9%, respectively.

The decline in bank stocks came as the broader market also remained weak. The Sensex fell as much as 383 points and the Nifty 50 touched 23,680 during the session. Reliance Industries, ICICI Bank, HDFC Bank, Bharti Airtel, Mahindra & Mahindra, Axis Bank, Infosys and TCS were among the stocks weighing on the benchmarks.

Why are bank stocks falling today?

Higher crude prices are a concern for India because of its heavy dependence on imported oil. A sustained rise in energy prices can put pressure on inflation, the import bill and the rupee, while also making the broader macroeconomic outlook more uncertain. The rupee weakened to 94.69 against the US dollar on Tuesday as oil prices climbed, although intervention by the Reserve Bank of India helped limit the decline.

The selling in banks comes despite a sharp improvement in liquidity following the RBI's special FCNR(B) deposit window. Indian banks mobilised $127.23 billion through FCNR(B) deposits by August 31, taking total foreign-currency inflows through the RBI's special facility to $136.38 billion. The strong response prompted the RBI to close the FCNR(B) deposit mobilisation window a month earlier than initially planned.

FCNR(B) inflows provide support to bank liquidity

Private banks have been among the biggest beneficiaries of the FCNR(B) inflows. ICICI Bank mobilised about $17.88 billion through the facility by August 31, with more than 70% of the deposits already linked to lending through direct loans and standby letters of credit. The additional funding has also helped ease pressure on banks' deposit costs and improve lending spreads.

However, the liquidity boost does not remove the near-term pressure on bank stocks. System liquidity rose to Rs 6.65 lakh crore by August 31, its highest level since May 2022, and the large pool of funds could intensify competition for quality borrowers. Analysts have also flagged the possibility of lower loan yields and some moderation in margins as banks work to deploy the additional liquidity.

Bank Nifty's third straight session of losses comes after the index had gained 0.71% on September 3, when ICICI Bank, HDFC Bank and Axis Bank advanced on expectations of improved liquidity from the FCNR(B) inflows.

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