The index also contributed to dragging the broader markets.
At around 2.50 pm, Bank Nifty was trading at 37,287.30 nosediving by 524.65 points or 1.4%.
Federal Bank and PNB were top bears plunging 3.6% and 3.5% respectively. SBI nosedived near 3.2%.
IndusInd Bank and RBL Bank plummeted nearly 3% each. While IDFC First Bank and Bandhan Bank dipped by 1.6% each. Stocks like HDFC Bank, AU Small Finance Bank and Axis Bank slipped more than 1% each.
ICICI Bank dropped 0.9%, while Kotak Bank fell marginally.
Banking stocks are in focus after the Union Cabinet has approved the central government guarantee of Rs30,600cr to back Security Receipts issued by the National Asset Reconstruction Company Limited (NARCL) aka bad bank.
Further, the Finance Ministry stated that NARCL proposes to buy about Rs2 lakh cr worth stressed assets in a phased manner within extant regulations of RBI. Notably, the bad bank plans to acquire these debts through a combination of 15% Cash and 85% in Security Receipts (SRs).
NARCL has been set up by banks to aggregate and consolidates stressed assets for their subsequent resolution. State-owned banks will maintain 51% ownership in NARCL.