Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,086.70114.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

State-run banks exploring QIP route to raise capital

he size of QIPs by state-owned banks could be in the range of Rs 19,000-Rs 32,000 crore

, ET Bureau|
May 13, 2019, 08.33 PM IST
0Comments
Getty Images
Bank2-Getty-1200
Kolkata: Qualified institutional placements from banks may see traction in the course of the year as lenders get optimistic about selling the turnaround story after three years of bad loans clean-up. Public sector banks, which had received lease of life with government pumping substantial capital in last few years, has begun planning to hit the capital as they are mandated to bring down government holding to below minimum 75% in two years’ time.

The size of QIPs by state-owned banks could be in the range of Rs 19,000-Rs 32,000 crore, rating firm ICRA told ET. “A large portion of which could be driven by State bank of India (about 40-50%), while the balance QIP will be by other PSBs. Many banks have already taken board approvals to raise equity capital in their recent results or earlier in this regard,” ICRA’s vice president & sector head for financial sector ratings, Anil Gupta said.

Allahabad Bank has announce a target of Rs 1200 crore capital raising sometime between August and October. United Bank of India is contemplating raising about Rs 800-Rs 1000 crore in QIP. Bank of Maharashtra is aiming Rs 3000 crore by way of either preferential allotment to government or by way of QIP/rights issue/ follow on public offer.

Allahabad Bank chief executive officer SS Mallikarjuna Rao said that the bank is keeping the QIP target modest at 8% of its market capitalization, anticipating stiff competition from several other lenders which are exploring the similar option.

Government raised its holding in several banks such as Allahabad Bank, Uco Bank and United Bank of India to above 90% today with infusion of capital multiple times in the last few years to offset the impact of spiraling bad loans. Banks, which were Reserve Bank of India’s under Prompt Corrective Action framework, adjusted the government capital against loan loss provisions to reduce net NPA ratio below 6%.

“As per our estimates, total capital requirement for PSBs (considering 8-10% loan growth and higher regulatory capital) is Rs 49,000 crore to Rs 72000 crore in lower to higher case scenario. The lower and higher case scenario are based on low / high growth and the extent of provision cover maintained by each bank,” ICRA’s Gupta said.

"Around Rs 30,000- Rs 40000 crore will be required to be infused by the government, while the balance Rs 19,000- Rs 32,000 crore in our estimates can be raised by PSBs from the markets. Of the total government obligation estimated above, a large portion of capital will be required by five banks under PCA which in-turn as per our estimates stands at Rs 24,000-27,000 crore, as it will be difficult for these banks to raise capital from markets,” he said.

Central Bank of India, IDBI Bank, Indian Overseas Bank, Uco Bank and United Bank of India are still under PCA.

The other routes like right issue will not be preferred as it will not reduce government shareholding unless the government refrains from subscribing to it.
The government may reduce shareholding though offer for sale route, but it will not resolve the capital requirement for banks.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service