SBI, ICICI drop for third day on rate expectations

Shares in banks continue to fall as worries about the timing and magnitude of interest rate cuts weigh on a sector already facing a number of headwinds including a potential rise in bad assets and liquidity shortages.

Banking shares have tumbled since the Reserve Bank of India kept interest rates unchanged on Thursday, sending bond yields sharply higher and offsetting the positive impact from a surprise cut in the cash reserve ratio earlier this month.

Though the government budget unveiled on Friday had positive measures to the sector, such as an injection of funds into public banks, Moody's Investors Service said the overall impact would still be negative.

"Banks will get capital but remain depressed by the government's worsening fiscal position," said the ratings agency in a statement on Monday.

Among decliners, State Bank of India lost 1.7%, after dropping 5.4% over the previous two sessions. ICICI Bank lost 0.8%, after falling a total of 3.8% on Thursday and Friday.