NEW DELHI: Kotak Mahindra Bank has replaced the largest state owned bank State Bank of India in the list of the country’s 10 most valued companies in the aftermath of a series of banking frauds and rising NPAs eroding Rs 112,588 crore in the market capitalisation of Indian public sector banks.
As the SBI stock price declined for the fourth straight trading days on the BSE on April 14, it was left with the market cap of Rs 2,22,489.97 crore — just below Kotak Mahindra Bank’s market valuation of Rs 2,22,970.4 crore (as of April 16).Kotak Mahindra Bank is now the second most valuable bank in terms of market-cap, replacing the SBI which has fallen to third position.
UCO Bank, which reported a fraud worth Rs 737 crore on Saturday, headed for its biggest drop since 2003 after the CBI registered a case against an ex-chairman.A series of banking frauds, starting with the one uncovered at Punjab National Bank, allegation of impropriety over a $500 million loan made by ICICI Bank Ltd and the fraud case against an ex-CMD of UCO Bank are posing serious question on reputation risk and corporate governance standards at financial institutions in Asia’s third-largest economy.
According to Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, the eroding valuation is more due to reputation risk rather than sectoral risk. “One way in which it (reputation risk) can be measured is through changes in market capitalisation of the affected institutions, which are well placed to capture the many indirect effects of reputation damage through their reflection of lost future earnings,” Ghosh said in a report ‘Risk Management and Emperor’s New Clothes: The Fear Of Reputation Risk’ released on Monday.
Giving examples, he added the Indian banking industry, which faced fraud of Rs 12,300 crore, in one-month time witnessed decline in market capitalisation, which was 13.2 times more than the fraud amount.The banking sector’s market cap, which was at Rs 392,096 crore before the PNB fraud was reduced to Rs 279,508 crore in two -month time, the report said.