A rally in Indian shares lost steam on Tuesday as banking stocks slid after a report warned of stress among lenders, at a time when millions of borrowers face losses in income amid a coronavirus lockdown.
The NSE Nifty 50 index, up more than 1.5% on Tuesday morning, closed 0.95% lower at 9,205.60. The S&P BSE Sensex fell 0.83% to 31,453.51.
The easing of coronavirus lockdowns helped boost Indian markets, but the optimism began to fade as banking stocks cratered.
The top four drags to the Nifty 50 were lenders. HDFC Bank Ltd, the nation's largest private-sector bank, fell 1.2%, while top mortgage lender Housing Development Finance Corp fell 2.4%.
The Nifty bank index began a gradual descent after credit ratings agency S&P said Axis Bank Ltd's recent financial results underscored "high levels of stress and uncertainty across the Indian banking system". The index ended 2.39% lower.
"The negative outlook on Axis ... reflects our view that the economic risks for the bank, and the Indian economy at large, remain high," S&P said.
Reuters reported last week that India expects bad debts at its banks to possibly double as the coronavirus crisis brought the economy to a sudden halt.
There is still uncertainty around the magnitude of bad debt that the country's banks will report as a result of defaults due to the coronavirus lockdown, said Rusmik Oza, head of fundamental research at Kotak Securities in Mumbai.
Indian banks are already saddled with $123 billion of bad debt or so-called non-performing assets (NPAs).
"There could be a huge jump and we could go into a second round of an NPA cycle," Oza said. "Most of the large banks like ICICI, SBI or Axis just came out of the corporate NPA pain of the last three years," he said, referring to defaults by heavily indebted businesses that had hurt many Indian lenders.
The Nifty energy index was the only one of the 12 sectoral indexes that ended higher on Tuesday, as crude prices rose. State-run Oil and Natural Gas Corp rose 2.5%.
Global stocks staged a rebound on Tuesday after a dour Monday when a US-China spat over the origin of the coronavirus triggered fears of a new trade war.