(Photo: Mint)
(Photo: Mint)

Canara Bank looks to tap markets to raise 6,000 crore through QIP

  • Final issue size may vary from targeted corpus depending on management discretion, investor decision
  • Other public sector lenders are also planning to raise money from the market

MUMBAI : Public sector lender Canara Bank is raising 6,000 crore through a qualified institutional placement (QIP) and has invited bids to hire five merchant bankers for the process.

According to the request for proposal (RFP) document reviewed by Mint, the final issue size may vary from the targeted corpus depending on factors such as management discretion and the decision of shareholders.

“The bank intends to tap capital markets via Qualified Institutional Placement (QIP) for an amount up to 6,000 crore. Further, the bank intends to initiate the process relating to the selection and appointment of up to five book running lead managers (BRLMs) or merchant bankers to prepare the requisite documents and to undertake various activities in relation to the QIP," the document said.

(Graphic: Sarvesh Kumar Sharma/Mint)

Canara Bank’s equity capital as on 31 March 2019 was 753.24 crore, of which the government held 70.62% and the public held the balance 29.38%.

“The bank wishes to invite sealed bids from eligible merchant bankers/BRLM firms/companies for selection as BRLMs/ merchant bankers to assist the bank in its QIP," it said.

Other public sector lenders are also planning to raise money from the market to either meet regulatory capital requirements or for growth.

While Central Bank of India is looking to raise 5,000 crore, Indian Bank is looking to raise up to 7,000 crore from the capital markets.

Public sector banks still creaking under the burden of bad loans and mounting losses are expected to require capital up to 40,000 crore.

As in the last few years, the government is unlikely to pump in the entire requirement and would rather prefer banks raise some of it from the market to stabilise first; getting them into lending mode would require another dose of capital.

In a recent speech, RBI governor Shaktikanta Das nudged banks to look for capital beyond what is being provided by the government. On the issue of capital, the governor said that although the government’s capital infusion had helped PSBs improve their balance sheets, PSBs should not become too dependent on this source. “Depending upon individual situations, PSBs should access the capital market for mobilization of capital."

Das also pointed out that in order to improve the functioning of public sector bank (PSB) boards and foster corporate governance, it was important to enhance their quality and stability through further streamlining the appointment process, succession planning and compensation. “We also need to create a pool of independent directors across various areas of expertise."

Das explained that an effective performance evaluation system should also be put in place for banks to improve their financial and operating parameters. The government, the Banks Board Bureau (BBB) and the RBI, he said, were engaged in developing an objective framework for performance evaluation of PSBs.

Meanwhile, after a prolonged period of poor performance, aggregate bad loans of state-run banks declined 12% to 7.17 trillion in the year ended 31 March, as the rate at which loans turned bad slowed and lenders accelerated a long-running clean-up by writing off soured assets.

At the end of FY19, Canara Bank’s capital adequacy ratio under Basel III stood at 11.9%, down 132 basis points (bps) from last year. The bank’s gross bad loans as a percentage of its gross assets stood at 8.83%, down 301bps from FY18.

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