Canara Bank, PNB, Kotak Mahindra Bank drag Nifty Bank lower ahead of RBI policy; meeting starts June 3

Banking stocks were trading lower on Monday, June 1, with Nifty Bank falling 1.37% amid weak market sentiment. The market investors also seemed cautious ahead of the Reserve Bank of India policy meet scheduled later this week.

Nifty Bank had opened at the 54,403.85 level and slipped to an intraday low of the 53,492.70 level. All the 14 stocks on the gauge were trading in the red, with Union Bank of India taking the lead, falling 3.2%. The index was underperforming the NIFTY50 index, which had dropped 0.7% to its intraday low of 23,379.95 level.

Canara Bank, Punjab National Bank, and Kotak Mahindra Bank were the other losers on the index, slipping 2.34%, 2.18% and 2.11%, respectively. Bank of Baroda (-1.81%), AU Small Finance Bank (-1.8%), IndusInd Bank (-1.51%), State Bank of India (-1.39%) and ICICI Bank (-1.36%) were also seen lower throughout the session.

Other losers were Axis Bank (-1%), Federal Bank (-0.87%), Yes Bank (-0.6%), HDFC Bank (-0.52%) and IDFC First Bank (-0.38%).

HSBC analysts in a note on Monday said that credit growth in India’s banking system remained strong, with headline growth at 16.2% compared with 16.7% year-on-year in March 2026. They noted that while the overall trend continues to be robust, macroeconomic headwinds persist, including inflation risks, a weak monsoon, and potential supply chain disruptions arising from the Middle East conflict, which could affect the loan growth outlook.

The analysts added that they are retaining their loan growth estimate of 12% year-on-year for FY27, with some upside risks. They observed that credit to MSMEs has moderated, while corporate lending has inched up. They also said that substitution of corporate credit through bond markets, along with the recently announced Emergency Credit Line Guarantee Scheme (ECLGS), could provide support if widely adopted.

RBI monetary policy meet

The Reserve Bank of India MPC’s bi-monthly monetary policy meet will be held this week from June 3 to 5. After three days of deliberations, the six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, will announce the rate decision on June 5.

The central bank had reduced the policy rate cumulatively by 100 bps in 2025-26.

RBI policy expectations

Goldman Sachs, in a note, said that economic growth has remained resilient in the early phase of the Middle East shock, and it expects real GDP growth for Q1 CY26 at 7.2% year-on-year. It added that headline inflation is likely to rise above 5% in the second half of CY26, even as liquidity conditions remain ample alongside tighter term-funding conditions.

The firm said it expects the RBI’s MPC to remain on hold at its June policy meeting and retain a neutral stance. However, it anticipates a hawkish tilt in forward guidance, adding that while the bar for interest rate hikes to defend the currency remains high, the RBI could announce measures to incentivise dollar inflows.

Furthermore, BofA said the RBI is facing a difficult policy backdrop, with the external environment remaining highly uncomfortable. It noted that holding rates for now appears to be the most logical course of action under current conditions.

At the same time, BofA said there are strong arguments in favour of a rate hike and expects policy to tighten, despite not anticipating either significantly higher inflation or very strong economic growth.