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Shares of state-run banks rise on PNB compensation hopes, easing rate woes


By Vishal and Krishna V Kurup

(Reuters) - Shares of rose on Tuesday after a report said (PNB) will compensate lenders who have lost money in an alleged fraud, and as easing inflation data allayed fears of a policy rate rise.

India's eased for the second straight month in February but remained above the 4 percent medium-term target of the Reserve of (RBI). Analysts from and Nomura said they expect the central to hold rates in the near-term following the new data.

The sector also got a boost on that recovered about 70 billion rupees ($1.08 billion) that had earlier been categorized as bad loans. It also expects to recover a further 20 billion rupees in another two months, the Hindu Business Line reported.

The bank's shares surged as much as 15 percent, its biggest intra-day percentage gain since Oct. 25. It was the top percentage gainer on the index that rose as much as 5.7 percent.

PNB shares rose as much as 8.5 percent, the stock's highest intra-day percentage increase since late October.

The stock had fallen 41 percent as of Monday's close since Feb. 14, when the company first revealed the mammoth amount involved in an alleged fraud that was initially pegged at $1.77 billion and later revised to over $2 billion.

"If there is a sizeable recovery in one bank then, it helps sentiment and also hopes of other banks recovering," Yuvraj Choudhary, an at brokerage Anand Rathi, said.

reported, citing sources, that PNB will honour claims by peer banks who issued credit to and his uncle against guarantees given by PNB, but with a few caveats.

PNB, the second-biggest state-run lender, has alleged that a few bank officials colluded with Modi and Choksi's firms to issue fraudulent letters of undertaking (LoUs) and allow them to raise loans from overseas branches of mostly Indian banks.

Both Modi and Choksi have denied wrongdoing, and so have two key accused PNB employees in the case, dubbed as India's largest ever

PNB did not immediately respond to requests for comment.

State Bank of India, the country's largest lender by assets, rose 3 percent while and jumped 4.7 percent and 9.3 percent, respectively. These banks are among lenders who have extended credit based on the LoUs issued by PNB.

A senior at one of the banks that has lent to the jewellery groups based on the PNB guarantees that have allegedly turned out to be fraudulent said discussions were ongoing on who will take the liabilities, but it was "premature" to comment on an outcome.

"We are talking. But then we have not come to a conclusion," said the banker, who did not want to be named, adding that PNB has not yet provided concrete assurances of repayment.

(Additional reporting by in Mumbai; Editing by and Muralikumar Anantharaman)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 13 2018. 13:55 IST