PNB fraud probe: Stocks tumble after Axis, ICICI bank officials summoned

Photo: Kamlesh Pednekar
The stock indices tumbled on Tuesday after central agencies widened the probe into the Rs 127-billion banking fraud at Punjab National Bank (PNB) by summoning top executives of leading private sector banks. 

Dropping for a fifth straight day, the Sensex ended at 33,317.2, down 430 points, or 1.27 per cent, the most since February 6. 

The move by the Serious Fraud Investigation Office (SFIO) to summon top executives of ICICI Bank and Axis Bank weighed on investor sentiment and raised concerns of the PNB fraud spreading to other banks. Banking shares were the biggest drag on the market, with shares of State Bank of India and ICICI Bank dropping close to 3 per cent each.  “The SFIO summons has spooked the market. Shares of all the banks dropped in the last hour of trade on worries that the fraud could be bigger. It was a knee-jerk reaction, said Ravi Muthukrishnan, head of institutional research, Elara Capital.

“We expect private sector banks to come clean. The pressure could remain on public sector banks,” Muthukrishnan further added.

The fall in the Indian market was despite a sharp rebound in global markets after fears of a trade war eased. Most Asian and European markets rallied over 1 per cent. 

The Indian markets, too, were in the green for most part of the day until the late sell-off in banking shares. The Sensex swung 850 points intra-day and settled 743 points lower from its intra-day high of 34,060. The Sensex has declined 1,123 points, or 3.3 per cent, in the last five trading sessions. 

The Nifty50 index on Tuesday closed at 10,249, down 1.1 per cent, extending its five-day losses to over 3 per cent.

Foreign portfolio investors were net buyers to the tune of Rs 6.2 billion, while domestic institutional investors (DIIs) sold shares worth Rs 7.4 billion. In the last few trading sessions, DIIs have been seen taking money off the table. 

“We expect the equity markets to be range-bound in the short term with a negative bias. The Nifty could fall below 10,200. However, these corrections should seen be as an opportunity to buy quality stocks,” said Muthukrishnan.

According to reports, the Enforcement Directorate has issued summons to the heads of 31 banks over the PNB fraud.  Market players said the fraud had led to uncertainty among investors, who are selling shares of banks after every rally. 

Many fear the asset quality issue could continue to plague the banking sector in the near term. Poor asset quality coupled with tighter provisioning norms by the Reserve Bank of India will weigh on earnings of banks over the next few quarters, say analysts. 

Most BSE sectoral indices ended with losses on Tuesday, with the realty and banking indices declining the most at 2.2 per cent and 1.4 per cent, respectively.  The NSE VIX index rose 5.5 per cent to 16.2, signalling more volatility in the coming days. 

On the BSE, 649 stocks gained, while 2,059 fell, of which 151 declined to their lowest level in one year. Among the four gaining stocks on the Sensex were IndusInd Bank and Tata Steel.

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