Nirav impact: Rupee slips to 3-month low

london — The Indian rupee slid to a near three-month low on Tuesday amid growing concerns about an alleged major bank fraud at India’s second-largest state-run lender, whilst emerging stocks fell half a per cent.

The rupee fell 0.9 per cent against the dollar to its weakest since mid-November as investors eyed the potential broader implications from the alleged $1.77 billion Punjab National Bank (PNB) loan fraud. Investors have also been unsettled by India’s trade deficit hitting its highest in over 4-1/2 years in January.

PNB’s shares were down 1.2 per cent in their fifth straight day of losses, trading at 1-1/2 year lows. The stock has shed more than a quarter of its market capitalisation since the fraud was first disclosed on February 12.

Ratings agency Moody’s has placed the bank’s credit ratings under review for a downgrade, while assuming a very high probability of government support for PNB. Investors are concerned that the broader

1.2% drop in PNB shares in their fifth straight day of losses

Indian banking sector could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies at the centre of the massive alleged fraud.

Five-year credit default swaps for State Bank of India rose one basis point (bp) from Monday’s close to 90 bps, according to IHS Markit data, a two-month high. India’s 10year local government bond yield traded near a two-year high. But India’s bank stocks index rebounded 0.7 per cent after slumping to a four-month low on Monday.

“The whole thing did come as a big surprise and markets will be looking to see what implications this has for ratings in the banking system in India as a whole,” said Simon Quijano-Evans, Legal & General Investment Management. — Reuters