With worries that the Reserve Bank of India (RBI) may hike policy rates and contraction in profit margins, the investors maintained a distance from the banking stocks on Thursday leading stocks to downward journey on third consecutive day.
The Bombay Stock Exchange (BSE) banking index Bankex on Thursday plunged by 146 points or 1.1% to close at 12,687. Bankex has fallen 767 points or 5.7% in the last three trading sessions.
"Investors are concerns about banks as RBI is expected to hike policy rate in the next quarterly policy later this month to contain rising inflation, which will impact the profitability of banks," said Saikiran Pulavarthi, banking analyst, Indiabulls Securities.
State Bank of India shed 72 points to close at Rs 2,625.0, Bank of Baroda lost 35 points to close at Rs 841.0, ICICI Bank by 17 points to Rs 1,053.0 and Punjab National Bank lost 11 points to close at Rs 1,192.0.
"The decline in banking stocks is mainly because investor have concerns about the profit margins of banks which will be under pressure in the first half of the year," said a banking analyst of a Mumbai based brokerage house, who did not wish to be named.
"There may be contraction of 20-30 basis points in net interest margins (NIMs) in the first half of the current year," he said.
The banks saw cost of funds increasing in the second half of the previous year due to shortage of liquidity as a result of tight monetary policy by RBI.