Lenders pace Indian share drop as key import-finance tool banned
Indian lenders paced a drop in shares as RBI said it will no longer allow them to issue a key import-financing tool after a $2 billion fraud in the banking system
Mumbai: Indian lenders paced a drop in shares as the nation’s central bank said it will no longer allow them to issue a key import-financing tool after a $2 billion fraud in the banking system.
The benchmark S&P BSE Sensex dropped 0.4% to 33,730.13 as of 10:21am in Mumbai. Private lender ICICI Bank Ltd and bigger rival State Bank of India were among the biggest drags on the Sensex, each falling by at least 1.2%.
State-owned banks are more likely to be hurt than their private peers as the Reserve Bank of India’s policy change may raise the cost of borrowing for trade-related loans, according to Kotak Securities Ltd. The so-called letters of undertaking, or letters of comfort, for trade credits that were meant for imports had been misused to facilitate a fraud that engulfed Punjab National Bank.
“The overall trade credit business contributed 3 to 4 percent for public banks, which should be at risk,” Kotak said in a note to investors. “Widening spreads in trade credit should augur well for private banks in the short term.”
Punjab National Bank fell 3.5%, Bank of India retreated 3.2% and Canara Bank dropped 3.1%. The three lenders were the worst performers on the S&P BSE 200 Index.
Twelve of the 19 sector indexes compiled by BSE Ltd declined. The S&P BSE Bankex dropped as much as 1%, while the NSE Nifty PSU Bank Index—a gauge of 12 state lenders—fell as much as 2.2%. Bloomberg