A report in a leading Indian Sunday financial paper that Capitec is the next foreign takeover target sent the local bank's share price rocketing nearly 14percent to R50 from Friday's closing price of R44.
But the share sank back after Capitec, along with its largest shareholder PSG as well as the State Bank of India (SBI), denied the deal.
The Economic Times reported that sources had told it that SBI had appointed accounting firm KPMG to do due diligence on Capitec in preparation for a takeover.
SBI entered South Africa 10 years ago and operates three local branches.
The paper quoted SBI's South African chief executive Vijay Jasuja as saying: "We need at least 20 branches in South Africa to make our retail venture profitable."
But Jasuja told Sowetan the report was false, and that SBI would complain to the Economic Times.
Jasuja said the paper had asked him to comment on South Africa's economic state. He had replied that the financial services sector was good and favourable for more investment.
"We cannot as a local branch make a decision to investigate the purchase of any shares without authority from the head corporate. We have not been given such an instruction."
Johan Holtzhausen, marketing manager of financial group PSG, which owns 35percent of Capitec, said neither the bank nor its holding company had been approached by SBI.
"If there was a deal we would have had to send out a cautionary note announcement. It would be the responsible thing to do. It is standard practice when information on a possible deal has been leaked or can no longer be contained."
Holtzhausen said since this had not been done, it confirmed that the rumours were not true.
Riaan Stassen, chief executive officer of Capitec Bank, said it was news to him as well.
"We are not in discussion with SBI. I was surprised by the report and only learned of the allegations of the deal from the reports in the media," he said.