Indian shares inched lower on Monday, dragged by heavyweight banking stocks after a central bank report forecast a potential jump in bad loans as a fallout of the COVID-19 pandemic, while IT stocks capped losses.
The NSE Nifty 50 index closed down 0.56% to 11,131.8 and the benchmark S&P BSE Sensex ended 0.51% lower at 37,934.73.
Banking stocks slid after a report released by the Reserve Bank of India (RBI) on Friday evening said bad loans could rise as much as 15% of the total loans by March 2021.
The report further said the pandemic could increase financial vulnerabilities, including corporate and household debt burdens in the case of a severe economic contraction.
Rating agency Fitch on Monday also said India's state-run banks would have "substantially higher" recapitalisation requirements as a pandemic-led asset quality deterioration begins.
The Nifty banking index fell as much as 3.6%, with HDFC Bank shedding 3.3% and Axis Bank dropping 3%. The state-run banking index declined as much as 3.3%.
ICICI Bank fell about 6% after the lender reported a profit that missed estimates for the quarter ended June as its provisions for bad loans rose sharply.
IT stocks capped losses and the sector's main sub index rose 0.7%. HCL Technologies rose 3.13%, Infosys gained 2.8% and Tata Consultancy Services advanced 2.3%.
Total cases of COVID-19 in India saw a record jump of nearly 50,000 infections over the last 24 hours and touched 1.44 million by Monday morning, according to government data.
Prime Minister Narendra Modi said on Sunday the country needed to be "extra vigilant" as the threat from the virus persisted.