Oriental Bank of Commerce, Dena Bank are still good bets: analysts

Banking stocks came under selling pressure in trade on Wednesday after DNA, a Mumbai-based financial daily, reported Rs 436 crore scam involving public sector banks - Oriental Bank of Commerce (OBC) and Dena Bank.

According to the report, the Union Finance Ministry has unearthed a scam involving Mumbai-based branches of these banks and has ordered a forensic audit after referring the case to the Central Bureau of Investigation (CBI).

A Dena Bank employee mobilised fixed deposits to the tune of Rs 256.49 crore from seven corporate using middlemen, the DNA report suggests. As regards OBC, the report points out to misappropriation of funds to the extent of Rs 180 crore by the branch manager in one of the Mumbai-based branch.

MARKETS REACT

The banking index, S&P Bankex, was among the top losers in intra-day deals, slipping nearly 0.5% with Bank of India, Punjab National Bank and Canara Bank losing nearly 1.5% each. OBC and Dena Bank that were named in the DNA's report skidded nearly 4% each in morning deals to Rs 265 and Rs 61, respectively.

This is the second instance in less than a month when a public sector bank was found being involved in a scam. Earlier this month, CBI arrested S K Jain, chairman and managing director of Syndicate Bank along with five others for allegedly accepting bribe from private companies to extend them credit facilities.

Since then, Syndicate Bank's has dipped from Rs 145 levels to Rs 127 till date (made a low of Rs 118 on 13 August) translating into a fall of 12% at the bourses, as compared to a rise of around 4% in the S&P BSE Sensex.

"The recent scams in the PSU banks are showing the kind of rot we have in the banking system. Till things are good, we keep pushing all this under the carpet and we have seen such things in the past as well," said Daljeet S Kohli, head of research, IndiaNivesh Securities.

While the markets have punished these stocks in this backdrop, analysts feel that OBC and Dena Bank can stage a recovery going ahead. With the economy on the mend and the markets looking up, one can invest in the banking space.

Says Vaibhav Agrawal, vice-president (research - banking) at Angel Broking: "There has been a clarification by the chairman of OBC that the amount involved is Rs 70 crore for their bank and they expect to recover a good part of that as well. In any case, I don't expect any material long lasting impact on the stock price as a result of this."

"On the other hand, valuations are still not expensive and if someone wants to play the growth revival, these stocks will do well. So from that viewpoint, both OBC and Dena Bank remain a buy among the other PSU lot. We like almost all the banks right now and expect most PSU banks to appreciate between 20-30% from their current levels over the next six months," he adds.