The Nifty Bank index witnessed sharp volatility on Thursday, 4 June following weakness on Dalal Street as concerns over the escalating conflict in the Middle East, elevated crude oil prices and caution ahead of the Reserve Bank of India’s monetary policy decision weighed on investor sentiment.
The slipped 0.6% to an intraday low of 53,829.40 before recovering nearly 1% from the day’s low to touch an intraday high of 54,333.70. The index has remained under pressure in recent months, declining 1% over the past month, 7.6% in three months and 8.5% in six months. While certain largecap lenders like , dragged the banking index; PSU lenders , Bank of Baroda showed some resilience.
The broader Indian stock market also opened weak. The benchmark indices Sensex and Nifty 50 came under pressure following negative global cues. Asian markets traded lower, while US markets ended in the red overnight as the latest escalation in the US-Iran conflict kept crude oil prices elevated and fuelled inflation concerns. Investors also remained cautious ahead of the RBI Monetary Policy Committee meeting scheduled between June 3 and June 5, with expectations that rates may remain unchanged but accompanied by a hawkish stance on inflation.
The Sensex fell 0.7% in early trade to a low of 73,807.30 before recovering around 1% to trade near 74,478.16.
Developments in the Middle East remained in focus. Iran’s foreign minister said that “no tangible progress” had been made in negotiations to end the conflict as fresh US and Iranian strikes strained a fragile ceasefire. However, US President Donald Trump expressed optimism, saying a breakthrough agreement “could happen…over the weekend.”
Meanwhile, Israel and Lebanon agreed to implement a ceasefire, although both sides said it would require a “complete cessation” of attacks by Iran-backed Hezbollah. The development helped cool oil prices, with Brent crude futures declining 0.69% to $97.14 per barrel and US West Texas Intermediate crude falling 0.65% to $95.40 per barrel.
Banking stocks’ performance
Among banking stocks, Canara Bank fell 1.6%, Punjab National Bank declined 1.4%, AU Small Finance Bank dropped 1.2%, HDFC Bank lost 1.1%, Kotak Mahindra Bank slipped 0.9% and Axis Bank was down 0.7%.
On the other hand, IDFC First Bank gained 1.4%, State Bank of India rose 1.2%, Bank of Baroda added 1%, while Federal Bank and ICICI Bank advanced 0.8% each.
Outlook ahead
According to Choice, margins for most large private banks remained stable during Q4 FY26 despite the cumulative 125 basis points repo rate cut over the past 15 months. The Weighted Average Lending Rate for fresh loans and outstanding loans declined by 93 basis points and 88 basis points, respectively, between February 2025 and March 2026. On the liability side, the Weighted Average Term Deposit Rate for fresh and outstanding deposits fell by 55 basis points and 47 basis points, reflecting continued challenges in mobilising deposits at lower rates.
“We expect the systematic banking credit growth to slow down from 16.1% observed in FY26 to a range of 12.0%-13.0% in FY27E, reflecting softer domestic demand stemming from the second-order effects of West Asia Conflict. Elevated global bond yields and rising energy costs underpin our forecast of a 25-50 bps rate hike in FY27E,” the brokerage said.
Choice expects FY27 earnings growth for banks to be supported by continued credit demand from MSME and retail segments, along with potential improvement in net interest margins driven by higher lending rates following anticipated repo rate hikes.
“The current West Asia Conflict poses serious upside risks to India’s CPI inflation trajectory, and we anticipate RBI will shift towards policy tightening over the next six months. Against this backdrop, we forecast improvement in NIMs of both private and PSU banks over FY27E,” Choice Broking said in its Q4 banking sector review.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.