Mumbai: Shares of banking firms fell with BSE Bankex, Bank Nifty and NSE Nifty Private bank indices hitting nearly a six-month low on Thursday after the ongoing series of investigations in various banks by the police and tax authorities have dampened the sentiments of investors.

Axis Bank closed down 2.06%, its fifth consecutive day decline, Yes Bank fell 1.01%, while Federal Bank fell 1.79%, both stocks fell for the seventh day, HDFC Bank fell 0.63%, this stock gained only seven times in the last 29 days, State Bank of India fell 2.12%, it fell in four out of five sessions, ICICI Bank fell 0.14%, it fell in six out of nine trading sessions, Kotak Mahindra Bank fell 0.97%, the stock fell in seven out of nine trading sessions.

BSE Bankex fell by 1.12%, Nifty Private Bank declined 0.96% and Nifty PSU Bank dropped 1.90%. All three indices fell four out of five trading sessions and hit a level last seen on 29 June.

Investors believe that the profit margins of the banks may come under pressure for the next few quarters on expected fall in credit growth led by reduced credit demand from small and medium sized enterprises due to demonetisation.

“The loan growth in personal loan segment (auto, credit card and other personal loans) may come under pressure as customers are deferring any additional expenses due to shortage of cash on account of limit on withdrawals. The banks are witnessing continued repayments on account of demonetization which is also reflected in sharp deceleration in systemic credit growth," brokerage firm Antique broking firm said in a 20 December note.

Further, an India Today report showed that how corrupt bank officials from some of the country’s leading lenders are diverting money supplies to tax thieves. The report also found them doubling up as touts renting out random bank accounts to the hoarders of black economy.

The report named Punjab National Bank, HDFC Bank, ICICI Bank and South Indian Bank. The report discovered how some bank employees were themselves partly contributing to the crippling shortages of money supplies to legitimate clients.

“Unethical behaviour by banks employees through aiding people converting their black money into white post-demonetisation has definitely weighed on sentiments. Any strict action by the RBI (reserve Bank of India) and government in coming days would correct the banks’ stocks especially for those who remain on top of list," said Satish Kumar, analyst with Choice Broking firm.

Over the past few weeks, amid reports of suspicious goings-on at various Axis Bank branches in the wake of demonetisation, the Enforcement Directorate (ED) and the tax department have visited eight of the bank’s branches. The ED, the tax department and the bank itself are reviewing 50 accounts. In the same period, the ED arrested a few Axis Bank employees.

Axis Bank has already suspended 24 of its employees and appointed KPMG to conduct an audit of suspicious transactions. It has made it mandatory for customers to submit income proof when they make large deposits, irrespective of the kind of account they have.

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