After PNB fraud, banks’ market capitalisation back to pre-fund infusion level
The government has launched an all-out effort to handle the fallout of the fraud at PNB. Investors in state-owned banks have lost a notional wealth of Rs 1.2 lakh crore from the November high.business Updated: Feb 19, 2018 23:57 IST
The combined market capitalisation of all state-owned banks reached almost the same level it was at before the government announced a Rs 2.11 lakh crore recapitalisation plan in October, highlighting the havoc wreaked by the sharp correction in the stock market and the fraud perpetrated on Punjab National Bank (PNB), allegedly by firms belonging to jewellers Nirav Modi and his uncle Mehul Choksi.
Investors in these banks have lost a notional wealth of Rs 1.2 lakh crore from the November high.
“The real problem here is that the stress has not come down for PSU banks. And the PNB case only indicates that there is so much of undisclosed and unknown stress that still exists. Additionally, the new Reserve Bank of India regulations on Non Performing Assets give limited maneuverability for banks. That’s why the market cap has gone back to pre-recapitalisation level. It also shows that recapitalisation in itself will solve the problem. Till the fundamental are solved, which is fall in stressed loans and provisioning, stocks of state-owned banks are not expected to perform well at least in the near-term,” said Suresh Ganapathy, banking analyst at Macquarie Capital.
Ganapathy’s reference is to the RBI’s move last weak to tighten policies on how bank’s deal with stressed loans.
Punjab National Bank itself has been hit hard by the fraud. Its market capitalisation has fallen Rs 7,131.22 crore to Rs 28,233.84 crore since news of the fraud broke on February 14. Since then, the combined market capitalisation of state-owned banks has fallen by around Rs 50,000 crore.
The government has launched an all-out effort to handle the fallout of the fraud at PNB. At least six government agencies and departments, including the CBI and the Enforcement Directorate are involved in attempts to trace Modi and Choksi, understand how the fraud was perpetrated, and retrieve as much money as possible.
The erosion in the market cap of public sector banks drew sharp reactions from the opposition, across parties.