Indian banking stocks came under pressure on February 6 after the Reserve Bank of India chose to maintain status quo on policy rates, bringing a pause to the aggressive easing cycle that began in February 2025.

At 10:45 am, the Nifty Bank index was down over 0.4 percent at 59,798.85, marking the second straight session of decline and slipping below the psychological 60,000 level. The fall followed the Monetary Policy Committee’s decision to keep the repo rate unchanged at 5.25 percent while retaining its ‘Neutral’ stance.

RBI Governor Sanjay Malhotra, while announcing the decision, said that although external headwinds had intensified since the December 2025 policy, the successful completion of trade deals and the resilience in domestic indicators kept both inflation and growth outlooks positive in the near term. Alongside the repo rate, the RBI also maintained the standing deposit facility at 5 percent and the marginal standing facility and bank rate at 5.5 percent, leaving the interest rate corridor unchanged.

The policy pause comes after a cumulative 125 basis points of rate cuts over the past year. For markets that had begun pricing in the possibility of further accommodation amid global uncertainties, the decision signalled a phase of policy consolidation rather than continued stimulus.

Banking stocks reacted negatively to this recalibration.

Shares of IndusInd Bank fell nearly 2 percent. Punjab National Bank, Bank of Baroda, Canara Bank, State Bank of India and Union Bank of India declined more than 1 percent each. Yes Bank, Federal Bank, IDFC First Bank, HDFC Bank and AU Small Finance Bank also traded lower by around 1 percent. In contrast, Axis Bank, ICICI Bank and Kotak Mahindra Bank managed to trade in the green, suggesting selective buying in stronger private sector lenders.

The divergence highlights a market distinction between banks perceived to have stronger balance sheets and profitability buffers versus those more sensitive to funding costs and credit quality risks in a neutral rate environment.

From a macro perspective, the RBI’s message was not hawkish, but it was clearly not dovish either. By retaining the neutral stance, the central bank signalled flexibility but avoided committing to further easing. For banks, this means that the rapid benefit to net interest margins from falling deposit costs may have already peaked.

During the rate cut cycle, banks enjoyed expanding margins as lending rates adjusted faster than deposit rates. With the repo rate now on hold, that margin tailwind may moderate, particularly for lenders with a higher share of fixed-rate assets or slower repricing liabilities.

Technical analysts now see the Bank Nifty entering a consolidation phase.

According to Hitesh Tailor of Choice Equity Broking, the index faces immediate resistance in the 60,300–60,400 zone, with crucial support in the 59,700–59,800 range. SAMCO Securities noted that the index is moving sideways after a sharp recovery from recent lows, with RSI near 56 and MACD still in positive territory. The brokerage identified 59,800 and 59,600 as key supports, with resistance at 60,300–60,350 and 60,500.

Bajaj Broking added that the 59,500–59,200 band, where the 20- and 50-day EMAs converge, is an important support zone. Sustained trade above this area could open the path toward 60,700 and 61,200 in the coming weeks, while a break lower could increase volatility. Broader support is seen between 58,500 and 58,000.

The market reaction indicates that traders were positioned for more accommodative cues. Instead, the RBI has effectively shifted the narrative from easing to stability.

For the banking sector, this environment typically favours lenders with strong CASA franchises, lower reliance on bulk deposits, and better asset quality visibility. It may also increase the focus on credit growth trends rather than margin expansion as the primary earnings driver.