After a strong beginning, equity markets lost steam during this afternoon session which frittered away the day’s impressive gains earlier to end in the red following report of summons issued by Serious Fraud Investigation Office or SFIO ~ the investigation wing of ministry of corporate affairs ~ to the country’s top private bankers Ms Chanda Kochhar CEO of ICICI Bank and Ms Shikha Sharma, MD of Axis Bank in connection with their exposures to two fugutive diamond merchants Mr Nirav Modi and Mr Mehul Choksi who are being probed by six central agencies for allegedly defrauding state run Punjab National Bank to the tune of Rs 12,700 crore using fake letters of undertakings or LoUs.

Dalal Street was in the grip of intense volatility as selling pressure intensified in the last 40 minutes. The equity benchmarks ended with deep cuts raising alarm that the market may soon slip into a bear hug if bank shares continue to tank further on more bad news for the sector.

SFIO granted liberty to these two bankers to send their representatives in case they are unable to respond to the summons owing to their commitments. Nevertheless, the move caused flutter in Dalal Street. The 30-share Sensitive Index of Bombay Stock Exchange collapsed from 34,060.13 (+313.35) points high to close 1.27 per cent down at 33,317.20 (-429.58) points.

The 50-scrip Nifty of the National Stock Exchange, that was up at 10,441.35 (+82.50) points on all-round buying by participants, collpased to 10,249.25 (-109.60) points, down 1.06 per cent. Bank shares were among the major losers as Nifty Bank settled losing 1.49 per cent at 24,448.45 (-370.25) points. Nifty PSU Bank crached 2.87 per cent closing at 2,936.35 (-86.85) points. In Sensex four shares ended up and 27 down. For Nifty the ratio was 9:41.

Reacting to the news, Bombay Stock Exchange sought explanation from ICICI Bank and Axis Bank to ward off adverse impact on the day’s trading.

The clarification came from SIFO which said Ms Kochhar and Ms Sharma were asked to appear at its Mumbai office to “explain in details” about credit line extended to Mr Modi and Mr Choksi and the current status of their accounts. SIFO is the latest agency to join the investigation.

The country’s top private lender ICICI Bank led a consortium of 31 banks/financial institutions that extended loan facility to Mr Modi and Mr Choksi. ICICI Bank had earlier clarified that it had provided only working capital to Gitanjali Gems of Mr Choksi and diamond companies owned/run by Mr Modi.

According to ED’s estimate the consortium has exposures of Rs 5,200 crore and Rs 4,000 crore to Mr Choksi and Mr Modi’s business interests respectively. The case against them is they ploughed back the money which they siphoned of (mis)using LoUs to secure issuance of more LoUs by PNB.

The ED had already questioned executive director of ICICI Bank Mr NS Kanan a week ago. The investigators have tracked the fraudulent use of LoUs way back to 2010. Mr Choksi had plan to list Nakshatra World on BSE. Mr Modi too was keen to list his diamond firms on the exchange. Their plans were in an advance stage in consultations with merchant bankers, claim the ED and the CBI.

The stock of Mr Choksi’s Gitanjali Group crashed 5 per cent more. Since the PNB fraud broke out on 14 February, the share has lost nearly 75 per cent in 14 straight sessions. Today it touched a new low of Rs 18.36 intra-day with only sellers and no buyers.