As the Government allowed public sector banks to raise capital from the markets, around 10 banks including State Bank of India, Bank of Baroda, IDBI among others have submitted their plans to the government to raise nearly Rs33,000 crore to meet their Basel III capital requirements. The Finance Ministry has chalk out a strategy for these banks with a condition that the Government will continue to hold at least 52 per cent stake in these lenders.
According to market experts, many public sector banks are currently trading at discounts to their book value. Indian Overseas Bank, for instance, trades at a discount of 53 per cent to its book value, while Andhra Bank, Allahabad Bank, United Bank and Indian Bank's market price to book value is about 40 per cent.
The country's largest public sector bank, State Bank of India has sought approval for raising Rs25,000 crore over the next couple of years. The applications under review include those of IDBI bank, which has sought approval for raising Rs4,000 crore, and of Indian Overseas Bank for raising Rs1,200 crore through the Qualified Institutional Placement (QIP) route.
"We are in discussions with banks. The instrument, offer size and timing of the issue will be decided by the respective bank boards," said a senior government official. According to the official, public sector banks can raise up to Rs1.6 lakh crore from the market if they are permitted to bring down the government holdings to 52 per cent.
Public sector banks have delivered higher earnings growth of 22 per cent on year on year basis as compared with 17 per cent against the private banks. According to market experts the current valuations of PSU banks are more attractive in the near to medium term. The Government has budgeted for raising Rs43,425 crore from stake sales in State-run companies this fiscal. The other banks that have submitted their requirement to raise funds include United Bank of India, Allahabad Bank, Union Bank of India, Vijaya Bank and State Bank of Mysore.
"The banks will be raising this amount over a period of five years or more. Each bank will tap the market as per their requirement," the official said, adding that the government's stake will be reduced in tranches.