ALSO READFrom SBI Life to Max Life, these insurance stocks can secure your portfolio ONGC-HPCL merger: A related-party transfusion with its own set of issues SBI Life's premium pricing justified CPPIB, GIC among anchor investors in SBI Life's offering PNB names Nirav Modi and Gitanjali Gems in the mega Rs 114-bn fraud
Shares of state-owned Punjab National Bank (PNB) dropped 12 per cent on Thursday to Rs 128.4. The lender, in the epicentre of a $1.77-billion scam, has seen a market capitalisation erosion of Rs 81 billion in two days. Its stock has shed 21 per cent — its worst two-day decline since May 2004.
Besides the government, which holds 57 per cent stake in the bank, Life Insurance Corporation of India (LIC) holds nearly 14 per cent stake. It has affected other institutional investors like HDFC Mutual Fund and Lazard Emerging Markets. Small investors hold nearly 4 per cent stake in the bank.
PNB, India’s second-largest state-owned lender after State Bank of India (SBI), is now valued at just Rs 311 billion.
Market players said investors are dumping shares of the bank, given the large scale of the fraud and concerns of it spreading. Analysts said investors are doubting the state-owned bank’s lending processes and systems.
“The amount involved is substantial, but more worrying is the stark process lax and repeated instances of similar frauds. Public sector banks (PSBs) continue to grapple with weak systems, raising questions on why the processes are not centralised, unlike most private banks,” said a note by Edelweiss.
Morgan Stanley in a note said PNB could be staring at huge impairments and the fraud could increase the bank’s capital requirement by Rs 80 billion.
Shares of other PSBs saw selling on Thursday despite the overall markets rising. Shares of SBI opened with losses but managed to close with 1 per cent gain. Bank of Baroda declined 4.1 per cent, IDBI Bank and Indian Overseas Bank declined over 3 per cent each.
“Gross exposure is significantly higher at $1.8 billion, though at this juncture it will be difficult to ascertain the financial impact across the banking system as investigations are on. However, we believe such instances of fraud and further pressure on asset quality will be an overhang on valuations for PSBs,” added the Edelweiss note.