Bank stocks slip as Maha farm loan waiver adds to FPI worry

Synopsis

Banking stocks plunged on Monday, with the Bank Nifty seeing its steepest fall since April 2025. Maharashtra's farm loan waiver announcement triggered widespread selling, particularly impacting state-owned banks. This, coupled with foreign investors' cautious stance on Indian equities, led to significant losses across the banking sector, with Union Bank of India and IDFC First Bank among the hardest hit.

Mumbai: Banking stocks led Monday's market decline, with the Bank Nifty falling 3.1% - its steepest single-day drop since April 2025 - after Maharashtra's announcemet of a farm loan waiver triggered selling and intensified cautious sentiment, particularly among state-owned lenders with higher exposure to agricultural loans.

Unease over the debt relief scheme in the state added to existing concerns over foreign investors selling in banks as part of their risk-off sentiment towards Indian equities.

The Bank Nifty tumbled as much as 4.3% during Monday's session before closing 3.1% lower, compared with a 1.7% decline in the benchmark Nifty.

Losses were sharper among state-run lenders. The Nifty PSU Bank index dropped nearly 4%, while the Nifty Private Bank index fell 2.8%.

Agencies

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"The sell-off in banking stocks has intensified in the past couple of sessions after the Maharashtra government waived off loans of farmers with outstanding dues of up to ₹2 lakh," said Christy Mathai, fund manager at Quantum Mutual Fund. "Since PSU banks have higher exposure to agricultural loans, the fall is sharper in this segment."

On Friday, Maharashtra Chief Minister Devendra Fadnavis announced a farm loan waiver of up to ₹2 lakh for eligible farmers, along with a focus on infrastructure spending in the state budget. Under the Punyashlok Ahilyadevi Farm Loan Waiver Scheme, farmers with loans pending up to ₹2 lakh as of September 30, 2025, will receive a waiver. Farmers who have regularly repaid their loans will receive an "incentive benefit" of up to ₹50,000, the chief minister said.

All 14 constituents of the Bank Nifty ended lower on Monday, with Union Bank of India dragging the index down 4.7%. IDFC First Bank and Federal Bank fell about 4.5% each, while IndusInd Bank dropped 4.1%. Canara Bank and State Bank of India declined more than 3.5% each.

Mathai said persistent foreign investor selling has also weighed on private sector lenders.

"The top holdings in foreign portfolios are large private banks, and in uncertain times investors typically sell the more liquid names rather than illiquid ones," he said.

Banks, which carry the highest weight on benchmark indices, tend to bear the brunt of broad foreign selling in Indian markets.

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