)
Shares of ICICI Bank, Axis Bank and HDFC Bank fell on Friday as concerns over a probe into money laundering allegations against them prompted traders to book profits after the rally the previous day. Analysts said the rise in bank shares on Thursday was driven by short-covering after decline in core-inflation sparked hopes of a cut in a key policy rate on Tuesday.
“Traders are expecting only a 25-basis point rate cut, which was already in the (share) prices on Thursday. So, the focus came back to corporate governance issues in private banks,” said Siddarth Bhamre, head-derivatives, Angel Broking.
ICICI Bank fell 3.9 per cent, HDFC Bank declined 1.1 per cent and Axis Bank dropped 0.90 per cent on Friday. The banking index fell 1.7 per cent, while the Nifty fell 0.6 per cent. Most public sector banks such as State Bank of India and Punjab National Bank ended firm.
Managements of other private banks went into a huddle this morning to ensure that their institutions adhered to all know-your-customer/anti money laundering guidelines. In an internal memo to his employees, YES Bank Chairman Rana Kapoor said he wanted employees to ensure that there was no single violation of this nature and that he wanted a full report from the vigilance department.
Meanwhile, the banking index had ended almost two percent higher on Thursday erasing early losses, which were triggered by revelations by a website, Cobrapost, that alleged these banks were involved in money laundering.
“Private banks (shares) enjoyed a premium over public sector banks partly because they were considered to be having better corporate practices and transparency. Now, this has been dashed in the short term,” said Bhamre.
The finance ministry and the Reserve Bank of India (RBI) are investigating allegations of money laundering practices at ICICI Bank, HDFC Bank and Axis Bank, the country’s biggest private banks.
“We think these developments, if they were to be true, could potentially lead to slower growth across private banks’ deposits and businesses as RBI may then direct banks to focus on improving risk management rather than expanding,” said Goldman Sachs, in a report.
The investment bank said the demat scam in 2005, where multiple fictitious trading accounts were opened by foreign and private banks which led to the RBI imposing penalties, had resulted in a slowdown in their expansion.
“We note that the RBI fully regulated the bank branch licensing policy back then. However, banks are now allowed to set up branches in Tier II to VI cities, but still need licenses from RBI in Tier I cities (metro and urban areas).
Some traders are betting on public sector banks over their private peers for the moment. Analysts said even if RBI cuts the repo rate by 50 basis points on Tuesday, shares of public sector banks could outperform because the resultant rally in government securities would boost their bond portfolio.
