>BANKS LINE UP ISSUES, INVESTORS TO CHERRY-PICK
Public sector banks (PSBs) are lining up to raise equity from the market but convincing investors may prove to be an uphill task for smaller banks.
Eight PSBs, including State Bank of India (SBI) and Bank of India (BoI), have received board approvals to raise fresh capital aggregating ~35,000 crore. Another five have informed stock exchanges that their boards will consider raising capital.
SBI’s board has given its nod for raising up to ~15,000 crore in equity capital in 2017-18.
“It will not be easy for banks to raise money. While market conditions and liquidity are better than last year, investors will only be willing to put up money if they see a credible turnaround plan for the banks in terms of capital infusion, bad loan resolution and management appointment,” said Pankaj Agarwal, banking analyst at Ambit Capital.
According to Morgan Stanley, while the large banks will be able to raise capital, the smaller ones could struggle. “With all banks looking to raise capital, demand from investors may be muted, unless banks make their offerings to government-backed entities,” said Morgan Stanley analysts Sumeet Kariwala and Subramanian Iyer in a note last week.
The government provided ~22,900 crore capital support in 2016-17 to 13 PSBs, 75 per cent of which was infused immediately. The Budget for 2017-18 has allocated ~10,000 crore capital support to PSBs.
The requirement for capital becomes crucial as banks begin taking haircuts on bad loans in the next few months.
Consultancy firm McKinsey estimates the capital requirement of the banking system at ~1.85-2.75 lakh crore till 2021-22. According to CRISIL, the capital infusion planned by the government is inadequate, given the requirement to meet BaselIII norms and the relentless rise in non-performing assets.
“Leaders among public sector banks will be able to raise money as there is enough appetite for these,” said V Jayasankar, senior executive director, Kotak Investment Banking.
The preferred mode of raising capital will remain qualified institutional placements (QIPs) followed by rights issues. “The advantage with the second method is that minority shareholders can participate,” said Alpesh Mehta, deputy head of research, institutional equities, Motilal Oswal Securities.
QIPs of PSBs amounting to ~20,000-25,000 crore had hit a wall in 2016 as a steep correction in their share prices and the bad debt overhang spooked investors. SBI, IDBI Bank, PNB, Central Bank of India, Indian Overseas Bank, Union Bank of India, Canara Bank and Oriental Bank of Commerce were among those that had put QIP plans on hold last year.
Some banks may wait till the appetite improves before firming up capital raising plans. P S Jayakumar, managing director and chief executive officer, Bank of Baroda, said, “The bank has headroom to raise up to ~6,500 crore in capital. We will review performance for the second and third quarters before arriving at a decision.”