PSU banks plan capital raising amid NPA clean-up
Mumbai: Most state-owned banks have started preparations to raise equity capital from the market as they look to strengthen their balance sheet amid continued focus of recovering bad loans.
Bank of Maharashtra and Dena Bank, both under the Reserve Bank of India’s (RBI) prompt corrective action (PAC), have invited bids for empanelling merchant bankers for their capital raising plans.
Bank of Maharashtra intends to raise up to Rs800 crore by way of qualified institutional placement (QIP). However, the issue size may vary on the bank’s discretion, the tender on its website showed. Dena Bank plans to raise up to Rs1,800 crore in this fiscal year through a variety of instruments, including follow-on public offering, rights issue and QIP.
“There is no indication from the finance ministry as to when capital infusion can be expected. But at the same time, weaker public sector banks need capital to resolve the asset quality issue, while others may require for growth purposes,” said a senior official of a mid-sized public sector bank, on the condition of anonymity. “Apart from that, banks have to meet the capital adequacy norms.”
For fiscal year 2018, the government has allocated Rs10,000 crore towards recapitalising public sector banks. According to analysts, banks under PCA need capital mainly because the asset quality issue is expected to keep provisioning at an elevated level especially that related to bad loans.
As an account remains non-performing for a longer period of time, the provisions, or the money required to set aside to cover losses, also increases.
According to RBI rules, banks under PCA are mandated to step up recovery of bad loans, reduce risky loans, strengthen their capital base and restrict branch expansion, among other measures, to improve their balance sheet.
Others such as UCO Bank and IDBI Bank, which are also under the PCA, are also putting fund-raising plans in place. Last month, Kolkata-based UCO Bank said that it would look to raise up to Rs3,000 crore in the current financial year, largely from Life Insurance Corp. of India (LIC).
IDBI Bank has obtained approval from its shareholders to raise Rs5,000 crore through various methods of share sale, including QIP. That apart, the lender is also aiming to raise Rs5,000 crore through sale of non-core assets.
“Fund-raising is also a part of their turnaround strategy and it is positive that all banks are moving in that direction,” said a banking analyst, requesting anonymity.
In March, the government had asked weak PSBs to come up with turnaround plans by setting stiff targets for improving asset quality, bad loan recovery, cost control, capital utilization etc. The plan is to have a tripartite agreement between the government, bank management and employees.
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