Second COVID-19 wave may delay PSBs equity raising plans

Public sector banks in need of raising equity have begun preparations for share sales but the second wave of the coronavirus may delay their plans. Punjab National Bank (PNB), Indian Bank and Bank of Maharashtra will be looking to collectively raise anything between Rs 6000 and Rs 8000 crore, but much would depend upon the market conditions.
Public sector banks would need about Rs 43,000 crore of fresh equity capital this fiscal, ICRA Ratings estimated. The government would infuse Rs 20,000 crore and the balance needs to be mobilized from the market.

“Our QIP will be in the first quarter provided the market conditions are favourable,” Indian Bank chief executive Padmaja Chundur said. Bank of Maharashtra chief executive AS Rajeev said that his bank would target the second quarter for equity raising to the tune of Rs 1000 crore through a combination of QIP and/or follow on public offer.

PNB, which fell short of the targeted QIP of Rs 7000 crore by 46% in December last year, plans to tap investors again for the balance Rs 3200 crore. Indian Bank has board approval for Rs 4000 crore. Bank of Maharashtra has board approval for Rs 2000 crore. Reserve Bank of India Governor Shaktikanta Das urged banks to create capital buffer over and above the regulatory norms

Banks would need to shore up their capital position to absorb some of the slippages as well as to sustain credit flow, especially when monetary and fiscal measures unwind, Das said in March at the Times Network India Economic Conclave 2021.

“It’s unlikely that public sector banks tap the equity market in the first half, given the past precedents. There could be bunching up of QIP in the second half after credit growth starts picking up. By that time, these banks would be able to assess how much capital they require,” ICRA’s sector head for financial sector ratings Anil Gupta said.