Markets

Banking stocks take a knock after RBI bans LoUs

NEW DELHI: Banking stocks such as Punjab National Bank (PNB) and Canara Bank slid on Wednesday after the Reserve Bank of India (RBI) barred all lenders from issuing letters of undertaking (LoU) – a form of credit guarantee at the centre of the PNB fiasco.

PNB was trading 3.62 per cent lower at Rs 94.45 on the BSE. As of Tuesday’s close, the stock is down 43 per cent this year. Canara Bank slipped over 3 per cent to Rs 244.25.

The Nifty PSU Bank index was trading 1.72 per cent down at 2,860.85, with 11 out of 12 constituents losing out.

Brokerage Kotak Securities said, "Overall trade credit business contributed 3-4 per cent for public banks, which should be at risk."

A key worry would be to see the impact of the current guideline on interest rates and possible risk of higher delinquency for a small segment of customers, it added.

Meanwhile, PNB told the police on Tuesday that it had uncovered additional exposure of about Rs 942 crore ($144.83 million) to the Gitanjali group, taking its overall exposure in connection with the fraud to well over the $2 billion mark.

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