India’s bank stocks are likely to face further losses as the Reserve Bank of India tightens its grip on rupee trading and rising energy prices weigh on profit outlook, according to analysts.
Jefferies estimates banks may face up to ₹5,000 crore in losses from the unwinding of currency trades due to central bank directives.
Already, global investors withdrew a record ₹32,700 crore from India’s bank stocks in first two weeks of March, according to data from the National Securities Depository Ltd. The Nifty Bank Index has lost $95 billion in market cap since the start of March, narrowly avoiding a bear market—defined as a 20% drop from a recent high.
“There could be further pressure on these stocks in the short-to-medium term as monetary policy can remain tight,” said Kranthi Bathini, an equity strategist at WealthMills Securities.
Fitch Ratings sees net interest margins of lenders shrinking 20 to 30 basis points in the year ending March 2027—potentially undershooting the credit rating agency’s 3.1% forecast—as tighter financial conditions weigh.
One basis point is one-hundredth of a percentage point.
At stake is the outlook for India’s $4.5 trillion stock market, given banks account for nearly a third of the benchmark index. A sustained weakness in shares of lenders risks undermining a broader market that is already among the worst performers in the region, down 13% for the year.
The Reserve Bank of India’s defence of a record-low rupee has constrained its ability to inject liquidity, tightening financial conditions that are likely to weigh on banks over the coming quarters. A prolonged conflict in the Middle East also risks derailing India’s nascent credit recovery, threatening loan growth as the broader economy cools.
To be sure, Bathini said valuations are becoming attractive after the correction. Bulls also point to India’s long-term economic growth, which remains among the fastest globally. The Nifty Bank Index trades at 1.5 times one-year forward price-to-book, its cheapest level since 2020, signalling an attractive risk-reward profile.
Citibank Inc. is already prioritising private-sector banks over state-run lenders, betting that the former can better absorb the macroeconomic stress that is now the prime concern for investors.
“Banks will definitely take some hit on their investment book,” said Rajat Agarwal, an Asia strategist at Societe Generale SA. “We recently saw a pickup in credit growth — what remains to be seen is how much of that gets pushed back” by the war, he said.
