Banking stocks hit by PNB fraud, RBI action

Banking stocks took a plunge on Wednesday after Punjab National Bank (PNB) reported a fraudulent transaction of Rs 11,334.4 crore ($1.17 billion) in one of its Mumbai branches on Wednesday and Reserve Bank dismantled old mechanism for debt resolution.

Though the benchmark indices opened up on Wednesday, they were soon in red, dragged down by the banking stocks as the PNB fraud surfaced.

On BSE, the S&P Bankex was the biggest laggard at 1.62%, while on NSE, PSU bank was the main losing sector, falling 4.78%.

"Basically, NPA's provisioning has affected the banks. I don't think cases like PNB will happen again. The PSU banks have faced series of shocks for some time now. So many changes in the provisioning norms are leading to this," G Chokkalingam, founder and managing director of Equinomics Research and Advisory Pvt Ltd, said.

On the BSE banking sector space, PNB tanked almost 10%, followed by YES Bank (4.40%), State Bank of India (4.06%), Axis Bank (3.35%) and ICICI Bank (2.29%). On NSE, PNB was the top losers, shedding 10.39%, followed by Oriental Bank of Commerce (8.35%), Allahabad Bank (8.05%), Bank of India (7.97%) and Canara Bank (5.96%). This was PNB's biggest fall since August 2015.

All the banks on Wednesday have lost a total of Rs 31,403 crore market cap from its previous close on Monday. Major damage was seen in State Bank of India, which lost around Rs 10,100 crore of market capital, settling at Rs 238,935 crore. Axis Bank lost Rs 4,835 crore followed by ICICI Bank with Rs 4,786 crore, PNB lost Rs 3,845 crore and YES Bank Rs 3,394 crore.

"Not all the banking stocks will be affected in future. Banks which have better NPAs and good business are not going to see much change in their stocks. But one has to wait and see in terms of PSU banks," Chokkalingam said on the impact of fraud at PNB on the banking stocks.

He said the fraudulent transaction is not the only reason for the negative impact on the PNB stocks.

"If Rs 11,000 crore case was the main reason, the stocks would have fallen a minimum of 20%," he said. The Reserve Bank of India's (RBI) new policy on stressed asset management for banks might be a crucial cause for the impact on banking stocks.

"PNB case is the secondary thing, RBI's policy is a major reason for the negative stock reaction. The PNB case should not affect the PSU banks, but the new RBI norms will impact the stocks," he said.