"It's all good in the long-run but in the short-term it is creating volatility in the financial markets when you're trying to control financial sector risk," Steven Sun, head of China equity strategy at HSBC, said on CNBC Asia's "Squawk Box," referring to the Chinese central bank's strategy.
Chinese banks were among the most heavily sold stocks on Monday, with the smaller lenders viewed as more dependent on short-term interbank funding suffering the most. China Minsheng Bank for instance fell more than 9 percent in Shanghai, while Ping An Bank slumped more than 8 percent.
Equity strategists said that while they did not expect China's stock market to be poised for a crash - an unanticipated and sharp drop in stock prices - the outlook was not great.
(Read More: Hedge Fund Manager Sees Stock Market Crash in China)
"I don't understand why they [China's central bank] are doing this. If you look at the way markets are trading, banks are trading, there is lots of uncertainty," Clay Carter, head of international equities at Perennial Investment Partners, told CNBC Asia's "Cash Flow." "It is one reason to stay away from Chinese equities at the moment."
— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: