The NSE Nifty fell for a fifth straight session and touched a one-month low on Tuesday as lenders took a hit following a report that the country's central bank has demanded higher provisioning for loans submitted under the insolvency process.
The Reserve Bank of India has asked banks to set aside at least 50 percent of the loan amount for accounts referred to bankruptcy courts, The Economic Times reported on Monday citing two bankers familiar with the order. The move could hurt banks' earnings to the tune of 500 billion rupees, it reported.
Analysts expect government-owned banks to be the worst affected as they hold the chunk of defaulted loans in the country.
"PSU banks will be under pressure for some more time as improvement in earnings for these banks will get delayed due to higher provisioning requirement," said Siddharth Purohit, senior research analyst at Angel Broking.
The broader NSE Nifty was down 0.46 percent at 9,531.20 as of 0554 GMT, after touching its lowest since May 26, while the benchmark BSE Sensex was 0.31 percent lower at 31,041.95.
The NIFTY PSU Bank index slid as much as 3.5 percent to its lowest since March 24.
India's biggest lender State Bank of India declined as much as 3.3 percent while Bank of Baroda Ltd fell as much as 4.8 percent to its lowest since Jan. 23.
Aurobindo Pharma Ltd climbed as much as 3 percent to its highest since March 24 after Jefferies analysts raised price target on the stock to 780 rupees from 750 rupees and maintained their "buy" rating.