India's state-run banks rise on PNB compensation hopes, easing rate woes (updated)

Gitanjali Gems

13/03/2018 08:18

* Retail inflation eases to 4.44 pct in Feb from 5.1 pct in
Jan
    * Nifty PSU bank index posts biggest pct gain in four months

 (Adds details from media reports, background, analyst comment
and share moves)
    By Vishal Sridhar and Krishna V Kurup
    March 13 (Reuters) - Shares of Indian state-run banks rose
on Tuesday after a report said Punjab National Bank (PNB)
 PNBK.NS  will compensate lenders who have lost money in an
alleged fraud, and as easing inflation data allayed fears of a
policy rate rise.
    India's retail inflation eased for the second straight month
in February but remained above the 4 percent medium-term target
of the Reserve Bank of India (RBI). Analysts from Citigroup and
Nomura said they expect the central bank to hold rates in the
near-term following the new data.  urn:newsml:reuters.com:*:nL3N1QU3YT
    The sector also got a boost on news that Bank of India 
 BOI.NS  recovered about 70 billion rupees ($1.08 billion) that
had earlier been categorized as bad loans. It also expects to
recover a further 20 billion rupees in another two months, the
Hindu Business Line reported. http://bit.ly/2FMqTV2
    The bank's shares surged as much as 15 percent, its biggest
intra-day percentage gain since Oct. 25. It was the top
percentage gainer on the Nifty PSU Bank index  .NIFTYPSU  that
rose as much as 5.7 percent.
    PNB shares rose as much as 8.5 percent, the stock's highest
intra-day percentage increase since late October.
    The stock had fallen 41 percent as of Monday's close since
Feb. 14, when the company first revealed the mammoth amount
involved in an alleged fraud that was initially pegged at $1.77
billion and later revised to over $2 billion.
    "If there is a sizeable recovery in one bank then, it helps
sentiment and also hopes of other banks recovering," Yuvraj
Choudhary, an analyst at brokerage Anand Rathi, said.
    The Economic Times reported, citing sources, that PNB will
honour claims by peer banks who issued credit to jeweller Nirav
Modi and his uncle Mehul Choksi against guarantees given by PNB,
but with a few caveats.  urn:newsml:reuters.com:*:nL3N1QV1UG   
    PNB, the second-biggest Indian state-run lender, has alleged
that a few bank officials colluded with Modi and Choksi's firms
to issue fraudulent letters of undertaking (LoUs) and allow them
to raise loans from overseas branches of mostly Indian banks.
 urn:newsml:reuters.com:*:nL4N1QJ2AO
    Both Modi and Choksi have denied wrongdoing, and so have two
key accused PNB employees in the case, dubbed as India's largest
ever bank fraud.
    PNB did not immediately respond to requests for comment.
    State Bank of India, the country's largest lender by assets,
rose 3 percent while UCO Bank  UCBK.NS  and Allahabad Bank
 ALBK.NS  jumped 4.7 percent and 9.3 percent, respectively.
These banks are among lenders who have extended credit based on
the LoUs issued by PNB.
    A senior banker at one of the banks that has lent to the
jewellery groups based on the PNB guarantees that have allegedly
turned out to be fraudulent said discussions were ongoing on who
will take the liabilities, but it was "premature" to comment on
an outcome.
    "We are talking. But then we have not come to a conclusion,"
said the banker, who did not want to be named, adding that PNB
has not yet provided concrete assurances of repayment.

 (Additional reporting by Devidutta Tripathy in Mumbai
Editing by Euan Rocha and Muralikumar Anantharaman)
 ((Krishna.VKurup@thomsonreuters.com; +91 80 6749 1310; Reuters
Messaging: Krishna.VKurup.thomsonreuters.com@reuters.net;))