With high bad loans limiting their business growth, several public sector banks (PSBs), including State Bank of India and Bank of India, are exploring ways to bolster their capital bases on top of the capital infusion by the Centre, sources told FE.
All the PSBs have been asked to work out their capital requirements keeping in view their NPA levels and business growth prospects ahead of a performance review meeting of their chiefs with finance minister Arun Jaitley on September 16.
Though the plans are at very early stages, officials said SBI may go for a qualified institutional placement (QIP) later this year. The board of SBI, which is currently in the process of merging its five associate banks and Bharatiya Mahila Bank with itself, has already approved a plan to raise R15,000 crore through QIP or public issues.
SBI is the biggest beneficiary under the R70,000-crore capital infusion by the government under ‘Mission Indradhanush’ between FY16 and FY19. It has got R13,106 crore or 27% of R48,000 crore that the Centre has infused so far in 19 PSBs since the previous fiscal.
Bank of India is also considering a QIP to raise about R2,000-2,500 crore to support its business growth. The
government’s holding in the lender has gone up to 70.32% after it infused Rs 5,389 crore, giving plenty of room to the bank to raise capital from the market.
Central Bank of India is understood to be in talks with Life Insurance Corporation, the biggest stakeholder in PSBs after the government, for a preferential allotment of 1% stake, sources said.
Both Bank of India and Central Bank of India reported losses in the first quarter of the current financial year. SBI posted a steep decline in its net profit for the quarter.
The government’s capital infusion exercise for the current year is based on an assessment of the need based on the compounded annual growth rate of credit for the last five years, banks’ own projections of credit growth and an objective assessment of the potential for growth of each PSB.
Based on these parameters, the government released R22,915 crore in July to 13 banks out of budgeted R25,000 crore for FY17. It could infuse another R7,000 crore this year based on their performance, with particular reference to greater efficiency, growth of both credit and deposits and reduction in cost of operations, sources said.
The capital infusion by the government would enable the PSBs to bring down the Centre’s stake to a minimum of 52% and help them raise funds from the market. Post capital infusion, the the Centre’s holding in SBI has gone up to 60.18% from 58.6% on March 31, 2015.
With LIC’s stake in many PSBs now over 10%, banks are looking for more QIPs to tap a wider investor base to raise capital since public offers may not be easy under the current market conditions due to high level of NPAs.
“I don’t see appetite among insurance companies for preferential issues from PSBs,”said Pranav Haldea, MD, Prime Database. While some banks might tap the QIP route in near future, they would have to increasingly tap the public offer route to raise capital, Haldea said.
With stricter provisioning for NPAs by PSBs under the directive of the Reserve Bank of India, their stressed assets (gross NPAs and restructured loans) stood at R7.33 lakh crore, or 14.34% of gross advances at the end of March 2016, compared with R82,861 crore, or 4.62% of gross advances for private banks.
As a result, PSBs posted a net loss of R17,991 crore in FY6, against a net profit of R30,869 crore in the previous year, constraining their ability to step up the credit needed to boost economic activity.