MUMBAI: Institutional investors may have to contend with mark-to-market losses on more than Rs 4,500-crore worth of Punjab National Bank (PNB) debt securities if the expanding scope of an ongoing probe into India’s biggest banking fraud triggers a rating downgrade.
Top Asset Management companies, including HDFC MF, Birla Sunlife MF, Reliance, UTI MF, and Axis MF, have invested in those securities, show data from Value Research, a mutual fund analytics firm. Those debt securities include different bonds and certificates of deposits.
“Although PNB bonds are not frequently traded in the secondary market and are held by people with a longer term perspective, a downward rating revision will surely result in mark-to-market losses," said Ajay Munglunia, Executive Vice President at Edelweiss Financial Services.
Some top schemes having exposure in PNB debt papers are HDFC Corporate Debt Opportunities Fund (Rs 125 crore), HDFC Cash Management Fund – Treasury Advantage plan (about Rs 150 crore), Reliance Corporate Bond Fund (about Rs 240 crore collectively via two set of instruments) and UTI Short Term Income Fund (Rs 255 crore).
The biggest ever banking fraud of Rs 11,400 crore, which has engulfed PNB, could trigger a rating downgrade amid a broader concern over continued asset quality slippage in India’s banking system.
“We need to assess the impact on their (PNB’s) profitability and capitalisation levels,” said Karthik Srinivasan, group head (financial sector), at ICRA ratings. “On any material adverse development, there is a fair possibility of either outlook cut or rating downgrade. We would take it up to our committee for necessary and suitable action.”
Last June, ICRA graded the bank’s bonds AA+ with stable outlook, a notch lower than the top grade, while the certificate of deposits was rated as A1+, the highest rank in the short term space.
If the outlook is cut to ‘negative’ from ‘stable’ now and the rating grade to AA, a notch lower than the exiting grade, PNB bond yields will go up, pulling prices down.
Emails sent to some top fund houses did not elicit any response, although several fund managers, speaking on conditions of anonymity, acknowledged more intense rating scrutiny of the public-sector lender.
“The rating agencies could put the company under a rating watch. We don’t expect any rating action to happen overnight as the agencies themselves have to figure out the exact problem,” said a debt fund manager from a large AMC. The person continues to hold the bonds in the portfolio.
Earlier, the government-owned Syndicate Bank faced a crisis when its chairman and managing director S K Jain was arrested by the Central Bureau of Investigation (CBI) for allegedly accepting a bribe. Global rating company S&P had then warned that it could downgrade the rating of the bank if its asset quality worsened, maintaining a ‘negative’ outlook.
[contf] [contfnew] 
ET Markets
[contfnewc] [contfnewc]
