Nifty Bank crashes 9% in March so far: What’s driving the sharp selloff?

Increasing geopolitical and geoeconomic risks, rising crude oil prices, a falling Indian rupee, and heavy foreign capital outflows have wreaked havoc on the Indian stock market. While most sectoral indices are in the red, the banking pack is witnessing a heightened selloff.

The Nifty Bank index has crashed 9% so far in March, with stocks such as Bank of Baroda, Federal Bank, Punjab National Bank, Union Bank, and Canara Bank down 10-11%.

Shares of HDFC Bank, ICICI Bank, YES Bank, Kotak Mahindra Bank, IndusInd Bank, Axis Bank, SBI, and IDFC First Bank have declined 5-10% in March so far.

Meanwhile, equity benchmark Nifty 50 has declined 6% this month so far.

Why are banking stocks falling?

The banking sector is seen as a proxy for economic growth. The current geopolitical uncertainties and speculations about the impact of crude oil price rise due to the US-Iran war and rupee's weakness on India's economic growth and earnings of corporates have triggered a strong selloff in the banking space.

To some extent, rising bond yields are also a factor behind the recent fall in the sector, especially the public sector banks (PSBs).

When bond yields rise, bond prices fall, leading to mark-to-market (MTM) losses on banks’ bond portfolios. Rising bond yields directly reduce the treasury income and profits of PSU banks.

Outlook remains healthy

Experts do not see a major impact of prevailing headwinds on the banking space. They expect the sector to benefit from strong domestic demand, government-led infrastructure spending, and increasing consumption.

Seema Srivastava, Senior Research Analyst at SMC Global Securities, pointed out that the Q3FY26 results of the banking sector reflected healthy credit growth, improved asset quality, and resilient profitability despite margin pressures.

Srivastava underscored that most large banks reported double-digit loan growth, led by retail, MSME, and infrastructure segments, supported by the RBI’s 125 bps rate cuts in 2025 that lowered borrowing costs and boosted liquidity.

According to Srivastava, banks' credit growth may remain in the 12–14% range, with retail and secured lending driving momentum. Margins may stay under mild pressure as deposit repricing catches up, but profitability should remain stable given lower credit costs and operating leverage from digital adoption, Srivastava said.

The SMC Global analyst believes private banks will continue to lead in technology-driven efficiency and customer acquisition, while public sector banks, backed by capital support and consolidation, are regaining competitiveness.

On Thursday, 12 March, the Nifty Bank index extended losses for the second consecutive session, crashing 1.14% to end at 55,100.95.

Gaurav Arora, the head of research at SAHI- an online trading platform, pointed out that the Bank Nifty/Nifty ratio, which stretched to 2.4 times on 2nd March — approaching the third standard deviation band — was clearly signalling exhaustion.

Arora highlighted that historical precedent suggests that such extended outperformance episodes are invariably followed by mean reversion.

"We anticipate this relative underperformance (which started on first week of March) to persist over the next 2-3 months as the ratio gravitates back toward its long-term mean. On the downside, the Support for the banking index is placed at 53,700 levels," said Arora.

Arora further said that within the sector, PSBs appear better positioned than their private counterparts.

"After the recent rally, PSU banks are consolidating around their 63-period EMA on daily charts — a level that has historically acted as a strong dynamic support during trending markets. This base-building suggests accumulation rather than distribution, making PSBs the preferred tactical bet within the banking space for the medium term," said Arora.

Riyank Arora, Associate Vice President - HNI and Derivatives at Hedged.in, pointed out that among PSU banks, Canara Bank ( ₹141), Union Bank of India ( ₹182) and Indian Bank ( ₹926) are trading near strong demand zones on the charts and appear attractive from a risk-reward perspective for medium-term positioning.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.