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The banking stocks dropped on Thursday after the central bank intensified its crackdown on speculative activity in the rupee by targeting corporate arbitrage, requiring lenders to close contracts in open markets by removing leeway to sell to corporates.

The Nifty Bank index slid 2.6%, private lenders and state-owned banks lost 2.1% and 3.2%, compared to a 1.9% decline in the benchmark Nifty 50

The tighter rules are a negative for banks as it may lead to higher losses, said Prakhar Sharma and Vinayak Agarwal, analysts at Jefferies.

(This is a developing copy)