Bank Nifty nears three-month low, down 2%

Bank Nifty is trading near its three-month low on back of weakness for the third consecutive day amid concerns of margin pressure on the banks post the deposit rate hikes. The index is down 2% or 192 points at 11,503 at 1100 hours, and is near its three-month low of 11,447 touched on September 9, 2010.

The index has underperformed the benchmark index in past three days by losing 7% as compared to 1.3% fall in the S&P CNX Nifty, presumably on fears that lending margins would decline, driven by the Reserve Bank of India (RBI) Governor's comment that banks should lower NIM to achieve double-digit and inclusive growth; and announcement of deposit rate increases by SBI and BOI without an increase in lending rate.

In a note, IIFL said "Fears of a margin decline are overdone—increases in lending rates typically trail those in deposit rates, and recent deposit rate increase without a lending rate increase is not a step towards lowering NIM as suggested by the Governor of RBI,"

Oriental Bank of Commerce, Indian Bank, Allahabad Bank, Bank of India, Uco Bank and Bank of Maharashtra were down more than 10% each in past three days, while State Bank of India (SBI), ICICI Bank and Punjab National Bank declined 6-7% each on the BSE.