Life Insurance Corporation of India (LIC) continues to add to its already substantial stake in several public sector banks as lenders look to the insurer to raise capital, reports Pallavi Ail in Mumbai. On Friday, Bank of India (BOI) said it was issuing 2 crore shares to the state-owned insurer and more than 26 lakh shares to New India Assurance at R283.50 per share to raise about R642 crore. The sale price represents a 31% premium to BOI’s closing share price on Thursday of 215.90.
LIC has almost doubled its stake in at least four banks in FY15 — United Bank, Punjab and Sind Bank, Central Bank of India and Bank of Maharashtra — investing almost R1,500 crore. It raised its stake in nine banks data till end December 2014, compared with its shareholding at the end of FY14.
With the government infusing capital into only nine banks that reported a return on assets above a certain threshold in FY15, several lenders were left out of the allocation process. In CY15, PSBs have raised almost R6,000 crore through perpetual bonds to supplement their tier I capital. The nine banks that together received capital of R6,990 crore are State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Syndicate Bank, Allahabad Bank, Indian Bank, Dena Bank and Andhra Bank.
In the Budget for 2015-16, the ministry has allocated R7,940 crore for recapitalisation of banks. “Capital is now required not only for growth but also for solvency in our view,” Macquarie Capital Securities India analysts wrote in a note dated March 11. The report points out that public sector banks remain heavily under-capitalised with a tier 1 capital of approximately 8% and stressed assets at 13% of loans and just around 20% of provision coverage.
With the Reserve Bank of India (RBI) pulling back forbearance on restructured assets from April 1, it would imply higher provisioning — which in turn would reduce tier I capital. The analysts estimate under such a scenario, tier 1 capital under Basel III norms is likely to be around 9.5% to 10%. “Over the next four years, going by government estimates, PSU banks need to raise $35-40 billion. We believe the government will have no choice but to either recapitalise them or force large PSU banks to acquire the smaller banks either which way not reducing capital requirements,” the analysts added.