1. PSU banks turn to LIC for lifeline

PSU banks turn to LIC for lifeline

Life Insurance Corporation of India (LIC) continues to add to its already substantial stake in several public sector banks as lenders look to the...

By: | Mumbai | Updated: March 21, 2015 5:24 AM

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.

Life Insurance Corporation, LIC, public sector banks, Bank of India, New India Assurance, United Bank, Punjab and Sind Bank, Central Bank of India

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.

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  1. C
    Mar 21, 2015 at 9:37 pm
    Why single out Rajan? Secondly, the earlier inbents were IAS Officers. The Parliamentarians are not sacrosanct and what is guarantee such presentations are not disclosed to private interests to their disadvantage. The private banks have a master who desire profits and whereas PSUs have no master nor accountability. The employees are apathetic to such loans when in system? Why criticism now.
    1. M
      Mar 21, 2015 at 11:19 am
      Great initiative!! A couple of of observations!! WHile capitalising the banks are important, please make sure through forensic audits are carried out for large NPAs and responsible credit-managers are punished for acts of commission and omission. Otherwise, there will be s in the balance-sheets of these banks again down the line!! Secondly, don't take the Basel 3 requirements too seriously!! The Basel Committee is a patent fraud, it's situated in Switzerland, which is a global capital for money-laundering and dirty banking! See the duplicity! The Basel Committee last year (or may be the year prior to that) had given clean chits to dozens of European banks for capital adequacy after conducting "rigorous" stress tests, but then Dexia Bank collapsed just two days later!! The Basel Committee is a bunch of jokers with little or no credibility, so forget about Basel 3 requirements!!! BTW another related development.... I came across a report today that private banks like ICICI, Axis and HDBC Bank are due to raise charges/fines from April 1 (like failure to maintain minimum quarterly balance etc). The RBI is apparently worried about the bottom-line of private banks!! Hmmm....So Raghu Rajan has taken it upon himself to ensure private banks make "adequate" profits at the cost of gullible customers!! Rajan was on the board of a couple of US hedge funds while teaching at Chicago University Booth School of Mgmt. Maybe there's a conflict of interest I can smell!!! The private banks' profit is already jumping between 15-25% q-o-q. How much margin is "adequate" for the "great economist" turned central banker Rajan?? Just curious to know!!! In every so-called "developed" economy, the central bank chief is made to appear before the parliament every quarter to answer questions from MPs on monetary issues and banking regulations!! But our RBI chief is insulated from all that, he sits comfortably at the top-floor, far away from the Finance Ministry and the parliament in Delhi!! Make Rajan face the lawmakers, he's answerable to the people of this country!!

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