At Rs 114 billion, the hit could be about 23 per cent of PNB’s current net worth. Given that the lender will need to provide for the fraud (amount not clear) as well as expected haircuts on the loans being resolved at the National Company Law Tribunal, the stock is likely to remain under pressure.
“Apart from additional liabilities on the back of this fraud and NPA pressure, potential fines charged by various authorities, domestic and foreign, will affect the bank’s profits,” an analyst with a domestic brokerage said.
There could be some pressure on the bank’s business, and consequently on earnings. “When this kind of a fraud happens, the bank’s attention generally moves away from business to other things like containing losses and improving systems,” the analyst said.
Against this backdrop of uncertainties, and with the bank’s overall exposure to the gems and jewellery industry, forecasting earnings and financial performance becomes difficult. “There are many uncertainties in terms of the value of the assets (of the Nirav Modi group companies), how recoveries will be made, and potential haircuts on bad loans. These do not lend any confidence in terms of valuations. I see a downside till around Rs 90-100 for the stock,” said another analyst.
Though the recapitalisation funds to be infused by the government and expected sale of non-core assets will lower the burden on the bank, the PNB stock may see abrupt rallies that may not sustain till there are clear signs of improvement in its core business of lending.
For now, do not bottom fish, caution experts.