PNB is among nearly 34 financial creditors who have claimed a collective 473.03 billion rupees from Bhushan Power & Steel Ltd, which the Reserve Bank of India referred to a bankruptcy court in 2017.

Shares in state-run PNB - which last year were hit by an alleged fraud of more than $2 billion in the accounts of two jewellery groups - fell as much as 11.5pc to a four-month low of 72.40 rupees on Monday.

The state-run banking index closed down 5.9pc as other banking shares dropped, partly due to concerns over Bhushan, with the broader market falling more than 2pc.

Indian conglomerate JSW Steel had emerged as the highest bidder for Bhushan but the case is still being heard in the bankruptcy court and the deal is yet to be concluded.

"There could be a perception that the recovery process could be delayed now that the investigative agencies are involved, as that could also make the buyers jittery," said Siddharth Purohit, research analyst at SMC Institutional Equities.

JSW Steel declined to comment on the matter.

PNB said on Saturday it had reported the suspected Bhushan Power & Steel fraud to the RBI on the basis of the findings of a forensic audit and the federal police filing the first stage of a formal investigation in India.

The bank's share price has been hit especially hard, as analysts said that even if money is recovered from Bhushan, other lenders would question whether PNB should take a full share given the allegation of fraud.

"There are also going to be concerns on how much PNB stands to gain now even if the resolution process goes through," said a banking analyst at a domestic brokerage, requesting anonymity.

Neither PNB nor Bhushan Power and Steel's insolvency professional immediately responded to requests for comment.

After first registering a complaint in April, the Central Bureau of Investigation (CBI) asked PNB last month to report the fraud, said an official at the bank who declined to be named since he is not authorized to speak to the media.

"We were a little reluctant to do it because the case is in the final laps in the bankruptcy court," he said. "However, since it was a diktat from the CBI banks had to give in."

The CBI did not respond to a request for comment.

On Saturday, PNB said it had already made provisions of 19.32 billion rupees for Bhushan's account.