Four PSBs a step closer to meeting Basel-III norms as govt nod for stake sale paves way
SUMMARYSix other lenders may get clearance soon to conduct institutional stake sale
Public sector banks’ long journey towards meeting the Basel-III capital requirement appears to be gathering pace. Four public sector banks now have the government approval to conduct institutional stake sale and four-to-six others are likely to get the nod soon, sources in the finance ministry, banking industry and capital markets told FE.
Banks, including Indian Overseas Bank (IOB), Union Bank, Canara Bank, Oriental Bank of Commerce (OBC), IDBI Bank, Central Bank of India, United Bank of India (UBI) and Allahabad Bank, among others, wish to raise capital by selling shares to institutional investors through the QIP route.
While government's approval is a positive step, sources acknowledge that the state-owned banks face several hurdles before raising fresh equity.
Low valuation is one of the issues with many PSBs trading below their book value on account of their asset quality and overall profitability. As a result, these banks may be forced to sell their shares cheap, and the recent market corrections makes matters worse for these PSBs.
Absence of chairman and managing directors (CMDs), recent market conditions and a long pipeline of private issues as well as government disinvestment after the festive season are other issues that pose serious hurdles, they said.
The Canara Bank scrip is down nearly 25% from the high of R498 touched in June, Bloomberg data show. The IDBI Bank scrip has declined a whopping 46%, whereas IOB has lost close to 36% from the peak of June.
The CNX PSU Bank index is down 14%. In contrast, Nifty has risen by about 3% since June second week, data show.
“Barring SBI and BoB, PSBs are at large trading below their book value. If you look at the banking industry, there have been a lot of talk, but the ground reality has not changed. It will take about six to nine months for policy decisions to reflect in banks’ performance. So, from that perspective, you may be forced to sell shares at discounted rates,” said another source.
Sources said certain PSBs had managed necessary approvals from the board of directors and shareholders, but were waiting for a green light from the government, without which these banks could not launch their issues.
The process was delayed by about three-to-four weeks due to finance minister Arun Jaitley’s health issues and the focus on assembly elections in Maharashtra and Haryana.
Investment bankers say that investors generally look at October and November to hit the market, but with so many issues being planned at once that it would clog up and investors would pick and choose the issues they want to INVEST in and leave out smaller PSBs in a lurch.
“In such a scenario, you need to do the issues in a phased manner instead of crowding the MARKET. I do not understand why did the government sit on the approvals when PSBs were ready to hit the market,” said an investment banker at a foreign investment bank.
Fitch Ratings has estimated Indian banks’ total capital requirement at over $200 billion (about R12.28 lakh crore at current exchange rates), of which PSBs would account for 85% share. Except for SBI and BoB, PSBs would find the capital requirements more challenging.
“Banks’ capital needs are likely to rise incrementally until the full phase-in of the Basel III regime in FY19. State-owned banks are at the heart of the problem. Declining profitability has hurt internal capital generation, while low valuations have virtually precluded access to equity MARKETS and increased dependence on state for capital,” said Fitch Ratings' director Saswata Guha in a report on October 2.
The finance minister, in his maiden Budget speech, officially estimated banks’ equity requirements at R2.4 lakh crore by 2018 to meet the Basel-III norms and said that recapitalisation of PSBs was top priority.