BackPublic sector banks eye sale of family gold to raise cash
State-owned banks could within months begin the sale of billions of dollars of unwanted assets to help raise cash
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Mumbai: India’s public sector banks, weighed down by bad loans and lacklustre profits, could within months begin the sale of billions of dollars of unwanted assets to help raise cash needed to meet tougher regulation.
State-run Central Bank of India could be among the first off the block, according to a tender document for advisers seen by Reuters, which outlines a plan to sell all or part of its home finance unit by the end of December.
IDBI Bank Ltd—another state-owned lender which owns stakes in the country’s top stock exchange and rating agency Credit Analysis and Research Ltd (CARE)—could put some of its non-core stakes on the block by March, the bank’s chairman told Reuters.
“We are waiting for an opportunity to sell," IDBI Bank’s M.S. Raghavan said in a phone interview, referring to the stakes as “family gold".
In the past three decades, Indian banks, often under pressure from a Delhi government wishing to develop markets or encourage home ownership, invested heavily in a network of home lenders, rating agencies and even the country’s largest stock exchanges.
Now the stakes could prove a welcome source of cash. India’s lenders need to gather nearly $40 billion in capital over the next four years to comply with the so-called ‘Basel III’ package of global banking rules.
In the past, the state would have stepped in with a capital injection. But policymakers have in recent months warned that state-owned banks would have to take care of their own needs.
Most of the banks’ capital needs are expected to be met through the sale of debt or shares in the banks themselves. But—wary of diluting its grip on some of the lenders—the government is also encouraging lenders to sell assets.
“It won’t be easy but they are not left with many options," said R.K. Gupta, a New Delhi-based managing director at Taurus Asset Management.
“They have to find a strategic investor for the stakes."
No easy solution
Industry advisers said the timing for the sales appeared promising for the banks, coming after Indian equity markets have risen strongly on the back of the election of Prime Minister Narendra Modi’s pro-business government. India is the best-performing stock market in Asia this year.
“(We) had invested in these things at an initial stage. They have got good appreciation now," said a top official at Punjab National Bank, which has stakes in rating agency Icra and UTI Asset Management Company.
“As and when required, or as and when we feel this is the right time to exit, we may sell these."
But finding a strategic investor may not be easy.
Such sales have been slow in the past—unlisted assets are less transparent and at least one senior industry banker warned that it could be tough to meet sellers’ expectations.
IDBI, which currently owns more than 16% of CARE, wanted to sell that stake last fiscal year, but bids failed to meet its target, Raghavan said.
Improving equities markets, even despite current turbulence, could change that.
IDBI’s other assets include about 5% of the National Stock Exchange of India (NSE), the top exchange in the country. State Bank of India (SBI) also owns a slice of the bourse.
“We think there can be an appreciation," Raghavan said. “(On) NSE... we believe we can get a good bargain. That’s why we are trying to time it," he said.
But Manish Ostwal, a banking analyst at K.R. Choksey Shares and Securities in Mumbai, warned the sales were unlikely to be a panacea for the cash-strapped sector.
“The major capital, if sustainable, should come from the markets," he said, referring to planned share sales by banks.
State-run banks are currently trading below their book value, and Ostwal said Modi’s government would need to encourage broad reform, consolidation and improve governance to make the banks attractive to investors. Reuters
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