The SBI QIP will see the bank raise Rs15,000 crore as it looks to strengthen its capital base to boost credit growth and cushion bad loans impact
Mumbai: State Bank of India (SBI) launched the country’s largest institutional share sale programme on Monday, aiming to raise up to Rs15,000 crore as it looks to strengthen its capital base to increase loan growth as well as cushion the balance sheet from bad loans.
With this issue size, SBI has broken its own record. Its Rs8,000 crore issue in January 2014 is so far the biggest institutional share sale. Coal India Ltd’s Rs15,200-crore new share sale in 2010 is the largest equity fund raise in India so far.
In a notice to the exchanges on Monday, SBI said the floor price for the so-called qualified institutional placement (QIP) has been set at Rs287.58 per share. The bank is open to offering up to a 5% discount on the floor price. SBI shares closed little changed on Friday at Rs287.35. At the floor price, SBI will issue 521.6 million shares if the issue is fully subscribed.
In March, SBI had got approval from its central board for raising up to Rs15,000 crore during the current fiscal through various routes such as an institutional share sale, rights offering and depositary receipts, among others.
“There is strong demand for the book and it should be comfortably subscribed. Investors looking at subscribing are mostly long-only investors such as pension funds and insurance firms, both domestic and foreign. The book will also see subscription by hedge funds," said a person involved in the SBI QIP, on the condition of anonymity.
Given the liquidity flowing into markets, raising such a large sum through the share sale will not be a problem for SBI, said another person involved in the QIP.
“There is a lot of money flowing in FII system as well as domestic system and investors are looking for quality paper. Between the last QIP and now, SBI stock has almost doubled. So, investors who came in the last QIP have been rewarded handsomely. Investors are also keen as they have seen how the management has created value in some of the subsidiaries such as SBI Life," this person said.
Analysts said after witnessing sluggish demand for loans in the previous fiscal, SBI would be keen on growing its book and this capital raise would help the lender.
“Part of this capital would be to meet growth opportunities and part of it for the expected rise in credit cost (percentage of provisioning against the total advances). SBI is seen as among the few state-owned banks that would be able to grow its loan book, given the asset quality issue faced by its peers," said Udit Kariwala, financial institutions analyst at ratings company India Ratings.
In the previous fiscal, domestic loans of SBI grew 7.92%. This was still better than the industry average of 4-5%. To be sure, most banks reported tepid loan growth numbers owing to lower demand for big-ticket corporate loans. Demonetization had also impacted demand for credit.
According to analysts, most state-owned lenders, with a market share of around 70%, will be conservative in growing their books, given the paucity of capital, and also because their focus would remain on recoveries of bad loans.
Apart from growth, this capital raise would help SBI increase its provisioning coverage because bad loans have risen following the merger of its five associate banks.
In absolute terms, consolidated gross NPAs for SBI stood at Rs1.79 trillion at March end. The gross NPA ratio stood at 9.11% while its capital adequacy ratio was 12.85%.
On 19 May, SBI chairman Arundhati Bhattacharya said the bank was carrying Rs5,910 crore as excess provision on standard loans—where the lender is anticipating some weakness—and Rs1,149 crore as a counter-cyclical provision buffer (capital reserves that banks need to build in good times; these are used only in times of economic or system-wide downturns).
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