SBI, ICICI Bank, HDFC Bank, others drag Nifty Bank down 1%; here’s why banking stocks are falling today

Banking stocks like State Bank of India, ICICI Bank, HDFC Bank, Punjab National Bank, and IndusInd Bank, among others, declined on Monday, October 12, dragging down the sectoral benchmark index around 1% as investors focused on the latest updates from the central bank, which seeks to tighten liquidity in the system.

Latest updates showed that over the weekend, the Reserve Bank of India (RBI) announced a series of moves to curb liquidity in the Indian banking system amid elevated inflation concerns in the economy.

NSE data showed that the sectoral benchmark Nifty Bank index dropped 1% to touch an intraday low of 54,709.05 points on Monday’s market, in comparison to 55,256.65 points at the previous equity market close.

After touching the day’s low, the banking index recovered some of its intraday losses but was trading 0.83% lower at around 54,797 points as of the noon deals. Stocks like SBI, ICICI Bank, PNB, Union Bank, and IndusInd Bank were leading the pack of top laggards during the trading session on October 12.

Experts say that the central bank’s move to absorb excess liquidity from the system, combined with the latest updated forex norms for OMCs, will add support to the domestic currency, which appreciated against the benchmark US dollar by 1% in Monday’s market.

Why are banking stocks falling today?

Banking stocks were falling during the trading session on Monday as investors were reacting to dented sentiment after the central bank increased the daily CRR requirements for institutional lenders, along with the announcement of ₹25,000 crore worth of bond issues.

RBI announced that banks will now need to maintain 99% of the required cash reserve ratio (CRR) every day effective from October 16, 2026, in an effort to further contain the liquidity scenario in the banking system.

The latest increase in CRR for banks to 99% level comes from the current required level of 90%. The cash reserve ratio is the percentage of reserves that banks need to keep in cash with the central bank to ensure stability while maintaining a failsafe in case of immediate liquidity needs.

Investors should note that due to the higher CRR mandate, the banks will now have less daily flexibility to invest or lend their reserves, as they will be required to store more funds with the RBI under the updated range.

Traders were also focused on the upcoming major bond issue from the central government, as the RBI plans to conduct an open-market sale of ₹25,000 crore of government bonds on October 13, as per the official filing.

The bond issue will be through a multi-security auction using the multiple price method, and the results of the auction will be announced on the same day. This comes at a time when the central bank projects a 6% inflation risk in the third quarter of FY27 due to continued supply-side pressure, El Niño conditions, and higher oil prices in the global market.

RBI also opened a ‘special window’ for public sector oil marketing companies (OMCs) to meet their entire daily dollar needs in the upcoming period, where the firms will be allowed to purchase US dollars directly from the central bank to fulfil their needs for import bills, steering the energy importers away from the spot currency market, in turn, reducing pressure on the Indian currency.

“All these measures should support the INR near term, possibly pushing it towards 95/US$, with further hardening of the 10-year yield and lower FX reserves,” said CLSA analysts.

Banking stocks in focus today

What do experts predict?

Analysts from global investment firm Jefferies said that RBI’s move to tighten the daily CRR maintenance limit comes in line with the shift in the monetary policy stance to ‘calibrated tightening’ amid inflation concerns in the Indian economy.

“At 100% CRR, banks would carry ₹8 lakh cr in CRR. If this lifts balances by 5-10%, it can withdraw ₹400-800bn of liquidity & add 1-2 bps to cost of funds. It is a small dilution of NIMs & banks may be able to pass to borrowers,” said the analysts.

On the bonds issue front, analysts from JP Morgan said that RBI’s OMO sales of ₹25,000 crore bonds will suck out the liquidity further from the system.

“These measures would suck out ₹50,000 crore of durable liquidity from the system. Banking system liquidity is likely to tighten in the coming days, which should move money market rates closer to the policy rate,” said JP Morgan analysts.