Two days after Lehman Brothers filed for bankruptcy, panic spilled over into the Indian banking sector, with shares of ICICI Bank leading the fall in banking shares.
A number of rumours surrounding India's largest private bank and a weakness in the bond markets saw investors dumping banking shares.
Shares of ICICI Bank witnessed heavy selling on rumours that the bank’s top management was selling its stocks. The bank had announced a day ago that it would set aside $28 million (Rs 112 crore) to cover its investments in the bankrupt US investment bank Lehman Brothers' bonds.
Though ICICI Bank clarified on the Bombay Stock Exchange, saying "these rumours are baseless and irresponsible, and no shares have been sold by members of top management of the bank during the current year," shares of the bank fell by 5.3 per cent or Rs 31 to close at Rs 560.
“Towards the afternoon rumours started floating around that ICICI top management was selling shares, which was later denied by the bank,” said Hansal Thackker, director, Lalkar Securities. “However, the sum the bank has set apart to cover its
investment exposure in Lehman bonds would show up in the balance sheet next quarter.”
The BSE Bankex fell 3.8 per cent to close at 6,852, with ICICI Bank, Canara Bank (down 5 per cent), Axis Bank (4.3 per cent) and IDBI Bank (4.1 per cent) pulling down the index the most.
There were also rumours that investors were withdrawing money from ICICI branches and ATMs after the bank announced it had set aside money to cover its exposure to Lehman Brothers' bonds.
The rumour started from Ahmedabad, a city susceptible to knee-jerk reactions to any financial development.
In 2003, depositors had flocked ICICI Bank ATMs there for withdrawals following rumours. The Reserve Bank of India had stepped in then to pacify investors.
"We have enough cash in our ATMs," an ICICI spokesperson said. "We have not witnessed any unusual withdrawals or account closures."
However, an HT reporter who visited an ICICI Bank branch in Central Mumbai, was told that the turnover of depositors at the ATM was marginally higher.
"They have fed in cash in the ATMs for the second consecutive day, while normally they do it once in two days," said the guard posted there.