PNB TUMBLES 13%, PSU BANK INDEX SHEDS 3.5%

Shares of Punjab National Bank (PNB) came under heavy selling pressure on Tuesday after the state-owned lender said the size of the fraud reported at one of its Mumbai branches could go up by ~13 billion.

Its shares declined by ~13.6, or 12 per cent, to close at ~98.35 apiece on the BSE, its lowest level in 20 months. Investors started dumping PNB shares ever since the bank disclosed a $2-billion fraud in its system. The stock has plummeted 50 per cent from its January peaks.

Selling in PNB also pulled down other public sector bank (PSB) stocks. The PSU Bank Nifty, a gauge of state-owned bank stocks, closed 3.5 per cent lower on Tuesday, with the Bank of India and IDBI Bank scrips declining 6.9 per cent each. The Nifty Bank index, where four of its 12 components are PSBs, slipped 1.2 per cent.

In the broader market, the Sensex lost about 100 points to end at 34,346, while the National Stock Exchange’s Nifty shed 28 points. The 30-share benchmark index opened higher at 34,558.56 and advanced to hit a high of 34,610.79 during early trade. However, it slipped to touch a low of 34,314.87 before ending 99.36 points, or 0.29 per cent, down at 34,346.39. The Nifty settled the day 28.30 points, or 0.27 per cent, lower at 10,554.30.

Analysts expect the selling pressure in PSB stocks to continue due to uncertainty regarding the quantum of the fraud. Investors also fear that other top PSBs could also end up having an exposure to the scam. Some of the top brokerages have suspended coverage of PNB, and have also given a ‘sell’ call to other PSB stocks.

In a recent note to investors, ICICI Securities cautioned them not to take any fresh positions in the PNB counter, even as the stock has fallen significantly from its long-term average price.

“Despite a steep correction in the stock price recently, we advise investors to avoid it, as uncertainty prevails in the near term and future business growth may also be impacted,” ICICI Securities said.

Nomura downgraded PNB shares to ‘neutral’ and cut earnings per share (EPS) estimates for FY20 by 23 per cent and estimated a “large loss” for FY19. “Adjusting for the incremental stress, PNB’s valuation at 0.65 times March 2020 book is not undemanding. The sale of the bank’s stake in PNB Housing Finance should lower the need for capital-raising and potential dilution,” the brokerage had said in a note on Monday.

Investors have been wary of the PSB stocks in the last six months, even as the market was consistently going up. According to data, eight of the 12 PSB stocks hit their life-time highs before August 2017. The benchmark BSE Sensex has added more than 10 per cent since then. The growing share of nonperforming assets (NPAs), along with an absence of credit growth, has dampened investors’ sentiment in these stocks. The PSB earnings have also been muted.

The sell- off was triggered after PNB disclosed a fraud in its banking system in a stock exchange filing. The bank had alleged that jeweller Nirav Modi and his associates allegedly colluded with the bank employees to obtain letters of undertaking (LoUs) to obtain overseas funds. These LoUs were issued without adequate documents and the transactions were also not added to the bank’s core solution.