The price of Punjab National Bank shares dropped by 30.5% between Feb. 14 and Feb. 28 after India's second-largest state-owned bank revealed the country's biggest loan fraud.
By contrast, the share prices of the other four largest state-owned banks by market capitalization — State Bank of India, Bank of Baroda, Canara Bank and Bank of India — slid by a median 8% in the same period.
Junior officials at PNB's Brady House branch in Mumbai are alleged to have extended a series of unauthorized loans totaling US$1.77 billion to billionaire jeweler Nirav Modi and his uncle Mehul Choksi between 2011 and 2017, the bank said mid-February. The bank added Feb. 27 that it had discovered another US$204 million in similar transactions.
India's Central Bureau of Investigation sealed and searched the Brady House branch Feb. 19 and arrested some officials of the branch as well as Rajesh Jindal, who headed the branch from August 2009 to May 2011, local media reported. Jindal is now a general manager at the bank's New Delhi head office.
The Indian government has since stepped up oversight on banks in general. The central bank set up a new panel to look into the sector's compliance issues and aims to recommend corrective measures. PNB also said it would strengthen internal controls and bar clerks from using the SWIFT global payments network to send messages.
On Feb. 22, Deutsche Bank cut its target price on PNB by 33% to 120 rupees from 180 rupees but retained a "hold" rating. The investment bank said nonperforming loans and provisions are set to eat into PNB's earnings and the Indian lender may need capital support from the government even if this dilutes existing shareholding. PNB shares closed at 101.35 rupees on the Bombay Stock Exchange on Feb. 28.

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