Public sector lender Bank of Baroda is expected to float its $1-billion qualified institutional placement (QIP) of shares in the next two-three weeks, sources with direct knowledge of the development said. In November last year, the Mumbai-based bank’s board had approved a proposal to raise additional equity capital through a rights issue or QIP. “Bank of Baroda’s QIP is likely anytime now,” a senior banker at a large foreign investment bank told FE. Till the time of going to press, Bank of Baroda did not reply to queries on this story. Most of the large public sector banks have been tapping the equity market to raise funds. The country’s largest lender, State Bank of India, completed its QIP of Rs 15,000 crore in June 2017. In December, the Delhi-based Punjab National Bank raised Rs 5,000 crore through a QIP. In the same month, another state-run lender Union Bank of India also raised Rs 2,000 crore. The Bangalore-based Canara Bank is also expected to raise capital through the QIP route in the near future.
Banks are queuing up to raise funds to shore up their capital adequacy ratio ahead of the government’s recapitalisation programme. In October 2017, the government approved a Rs 2.11-lakh-crore recapitalisation plan for the public sector banks. As per the two-year plan, Rs 1.35 lakh crore will be mobilised through the issuance of recapitalisation bonds and about Rs 58,000 crore through dilution of government equity in various public sector banks. The government will provide a support of Rs 18,139 crore under the existing budgetary allowance. While announcing the recapitalisation programme, the government had underlined the importance of measures taken by the banks to improve their books, and had indicated that the quantum of funds received by each bank would depend on the reforms they have undertaken.
Analysts said that the stronger banks are likely to garner a lion’s share of the funds, while the weaker banks will only get funds enough to meet regulatory requirements. As per the global capital-to-risk norms, the Basel-III capital regulation – which is being implemented by the Reserve Bank of India – banks will have to maintain a minimum common equity ratio of 8% and total capital ratio of 11.5% by March 2019. At the end of the September quarter, Bank of Baroda’s capital adequacy ratio stood at 11.64% and its Common Equity Tier-1 (CET-1) ratio was 8.39%. On Tuesday, the bank’s shares closed at Rs 173.25, up 5.13% from the previous close.