The central government has asked five state-owned banks to raise capital from the markets to meet their requirements for the fiscal year 2017-18. The Department of Financial Services has asked the relatively strong public sector banks (PSBs) — Canara Bank, Bank of Baroda (BoB), Indian Bank, Vijaya Bank, and Syndicate Bank — with a fairly good market capitalisation to not depend on the government’s recapitalisation plan.
“We have asked five strong banks that have consistently performed well, to raise funds on their own from the market. We are encouraging them to tap the market as their market capitalisation is fairly good,” said a government official.
“Three banks — Vijaya Bank, Syndicate Bank, and Indian Bank — are small but with good fundamentals and a good market price. We have encouraged them to tap the market,” the official said.
The Budget has allocated Rs 10,000 crore for the recapitalisation of state-owned banks as part of Indradhanush, the seven-pronged strategy to revive PSBs.
According to government officials, these five banks are capable of raising funds on their own and won’t need capital support from the government.
Each of these PSBs is looking to raise between Rs 1,000 crore and Rs 6,000 crore from the market, easing pressure on the exchequer. Further capital infusion in these relatively strong banks appears unlikely.
Canara Bank is the fourth-largest bank by market capitalisation, behind State Bank of India (SBI), BoB, and Punjab National Bank.
PSBs require capital for meeting Basel-III norms and cleaning-up balance sheets as non-performing assets (NPAs) have mounted to unacceptably high levels. Canara Bank had raised about Rs 1,250 crore through a rights issue to its shareholders in the last fiscal year. It earned a net profit of Rs 1,122 crore during 2016-17, against a net loss of Rs 2,813 crore in the previous financial year. Its gross NPAs rose 8.1 per cent to Rs 34,202 crore as of March 31.
BoB earned a net profit of Rs 1,383 crore in FY17, against a net loss of Rs 5,396 crore in FY16. Its NPAs increased by 5.4 per cent to Rs 42,719 crore at the end of 2016-17.
Vijaya Bank is looking to raise Rs 1,000 crore in the current fiscal year from the market. The bank’s net profit for 2016-17 rose 96.56 per cent year-on-year to Rs 750.48 crore and operating profit was up by 56.32 per cent to Rs 2,421.15 crore.
Indian Bank, on the other hand, reported 278.39 per cent growth in net profit for the quarter ended March 31, 2017, to Rs 319.40 crore, compared to Rs 84.49 crore in the year-ago period. It may consider a follow-on public offer to raise Rs 1,000-1,200 crore.
Union Finance Minister Arun Jaitley had announced in the Budget that additional allocations would be made beyond the Rs 10,000 crore for the fiscal year if required. However, government officials said that in the normal course, more capital might not be needed. But, in the case of consolidation of PSBs, more capital may be required.
After SBI’s merger involving six of its subsidiaries, the second round of consolidation of two big banks — Canara Bank and BoB — with smaller ones is being deliberated.
Of the Rs 1.8 lakh crore capital requirements for adhering to Basel-III norms, the Centre, through Indradhanush, had promised Rs 70,000 crore over a four-year period beginning 2015-16. Banks were asked to raise the remaining Rs 1.1 lakh crore.
Of the amount promised by the Centre, PSBs received Rs 25,000 crore in the previous two years and will receive Rs 10,000 crore this year, followed by an equivalent amount in FY2018-19.