State Bank leads lenders lower with 3% decline

Mumbai: India's benchmark stock index fell to a two-week low. State Bank of India led lenders lower for the second day on speculation the central bank may tighten monetary policy to contain spiralling food costs, curtailing lending.

State Bank, the nation's biggest lender, dropped 3 per cent, its steepest decline in a month. ICICI Bank Ltd, the second-biggest, lost 2.9 per cent to its lowest level since November 3.

"The central bank may adopt a hawkish stance to control inflation," said Vaibhav Sanghavi, a director at Ambit Capital Ltd in Mumbai, who manages funds for wealthy individuals. "This will lead to tightening of liquidity."

The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 220.39, or 1.3 per cent, to 16,877.16, the biggest drop and lowest level since November 27. The S&P CNX Nifty Index on the National Stock Exchange declined 1.4 per cent, to 5,033.05. The BSE 200 Index retreated 1.4 per cent to 2,108.35.

State Bank dropped 3 per cent to Rs2,180.5, the most since November 12. ICICI Bank slid 2.9 per cent to Rs825.65. Housing Development Finance Corp, the biggest mortgage lender, lost 2.3 per cent to Rs2,617.35. HDFC Bank Ltd, the third-biggest lender, fell 3.2 per cent to Rs1,700.8. Axis Bank Ltd, the fourth-largest lender by market value, retreated 3.5 per cent to Rs959.7.

India's Finance Minister Pranab Mukherjee on Monday said he sees inflationary pressure, particularly in food, as a matter of concern.