Mumbai: The capital markets are expected to see a flurry of fund raising by state-owned banks in coming months to shore up their capital to meet provisioning needs as well as to comply with the capital adequacy requirements under the Basel norms.
Eight banks have already taken approval from their respective boards while another five are in the process of seeking the necessary approval to raise fresh capital.
“State-owned banks under capitalisation continues to be the big drag. With the government capitalisation continuing to be piecemeal and significantly below requirements, SOE banks will likely struggle to make proper provisions on bad loans thereby keeping the NPL problems alive.
In our view, the only way out is to make aggressive provisions — which given weak pre-provision operating profit (PpoP) and low capital ratios for most banks — is only possible through fresh capital raise,” Morgan Stanley said. According to an estimate by India Ratings and Research, Indian banks need a total of Rs 3.7 lakh crore between 2017 and 2019 to meet Basel III norms.
The board of SBI has approved the proposal to raise upto Rs 15,000 crore during FY17-18 by way of fresh issue of shares through either follow on public offer (FPO), rights issue, qualified institutional placement, American Depository Receipts (ADR), Global Depository Receipts (GDR) or any other mode or combination of these instruments subject to approval of the government of India and RBI.
Similarly, Bank of India has taken the approval from its shareholders to raise as much as Rs 10,000 crore through the issue of both equity and debt instruments. Other lenders who have either taken approval or in the process of seeking approval include Bank of Baroda, Oriental Bank of Commerce, Vijaya Bank and Dena Bank among others.
However, analysts at Morgan Stanley are little skeptical about investors appetite for these offers. They feel that large banks would be able to raise capital given their relatively better fundamentals.