3 Reasons Why Banking Stocks Fell In Trade Today

Entirely the weakness in today's stock market trade has largely to do with the banking and financial pack, which led indices to shed their early gains, wherein Nifty clinched levels of 15293 at day's high.

Nifty PSU Bank, Nifty Private Bank and Nifty Bank at the time of writing this report were trading down by over 1 percent were trading weak by over 1 percent.

So, here are the likely reasons for the fall in the banking pack today

1. Mehuk Choksi goes missing:

Fugitive businessman Mehul Choksi involved in PNB scam has been reportedly missing and sources from Antigua told the leading publication TOI that the offender might have moved to Cuba on fears of extradition to India. Currently India doesn't has any extradition treaty with Cuba.

The Mehul Choksi saga came to light in the year 2018 when he along with Nirav Modi defrauded the public sector bank Punjab National Bank of $1.8 billion by getting bank officials to issue fraudulent bank guarantees for his business.

2. QIP by Union Bank and Canara Bank:

Public sector banks in order to capitalize them have been taking the QIP route. Canara Bank board will meet on May 28 to consider and approve Capital Raising Plan of the Bank for FY 2021-22 through Qualified Institutional Placement (QIP) issue / Follow-on Public Offer (FPO) / Rights Issue / Preferential Issue or any other mode or through a combination thereof and / or through issue of BASEL III Bonds or such other securities as may be permitted under applicable laws etc., subject to necessary approvals / permissions.

In another development, another lender Union Bank of India has said that the stock exchanges have allowed their permission for the listing of 42,79,03,111 equity shares of Rs. 10 each issued at a premium of Rs. 23.82 bearing distinctive numbers from 6406844356 to 6834747466 Issued to the eligible Qualified Institutional Buyers (QIBs) pursuant to the Qualified Institutional Placement (QIP) issue of the Bank.

Through the QIP the Union Bank raised a total of Rs. 1447 crore. With QIP, the number of outstanding shares in the market would increase and the scrip's share price shall be impacted negatively.

3. Cybercrimes increase a threat to bank ratings:

In a report, S&P highlighted that the rise of cybercrime may be a threat to bank ratings. The banking sector is becoming highly exposed to cybercrimes after Covid-19 pandemic pushed digitalisation and remote working.

As per the report, SBI has seen the highest amount of loan as fraud of Rs. 78,072 crore as on March 31, 2021. This was followed by PNB. On an overall basis, in a RBI release, the frauds have been pegged at Rs 4.92 trillion, which accounts to close to 4.5% of the total bank credit as on March 31, 2021.

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