ADVERTISEMENT

Bank at Center of $2 Billion India Fraud Heads for 13-Month Low

PNB fell as much as 4.7% in today’s trade and was headed for its lowest close since January 2017.

Bank at Center of $2 Billion India Fraud Heads for 13-Month Low
Pedestrians walk past a Punjab National Bank (PNB) branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

(Bloomberg) -- Punjab National Bank led other state-run banks lower for a fifth day Tuesday as concern about stress and risk levels at the lenders increase amid a $2 billion bank fraud.

PNB fell as much as 4.7 percent and was headed for its lowest close since January 2017. UCO Bank declined as much as 3.7 percent while Allahabad Bank Ltd. lost 4.2 percent. Union Bank of India lost as much as 4.4 percent, while Indian Overseas Bank retreated 5.1 percent.

“The disclosure of 113 billion rupees ($1.75 billion) of fraudulent transactions at Punjab National Bank will raise doubts about underwriting standards and operational risks at Indian state-owned banks,” Bloomberg Intelligence analyst Diksha Gera wrote in a report. “Regulators and investors are also likely to scrutinize other lenders, which could impact investor sentiment in the sector. ”

Moody’s Investors Service today placed under review for downgrade PNB’s local and foreign currency deposit rating of Baa3/P-3 and Baa3 foreign currency issuer rating, citing the risk of a weakening of the bank’s standalone credit profile due to fraudulent transactions. The transactions represent about 230 basis points of the bank’s risk-weighted assets as of 31 December 2017, the rating firm said.

PNB’s capital position would deteriorate markedly, and fall below minimum regulatory requirements, if the bank is required to provide for the entire exposure, according to Moody’s.

Punjab National Bank’s Viability Rating of ‘bb’ was put on rating watch negative “following the large fraud reported by PNB,” Fitch Ratings Ltd. said in a statement.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Margo Towie

©2018 Bloomberg L.P.