After elections, expect a mad scramble among banks over who hits the market first to raise money. Public sector banks, which had shelved plans to raise funds in adverse market conditions, are once again lining up QIP (qualified institutional placement) issues to strengthen their capital base and finance business growth.
State-run lenders – including Allahabad Bank, IDBI Bank, Indian Overseas Bank, Syndicate Bank and United Bank of India – are exploring options to raise money through this route, bankers said.
“Earlier, the view was that the market conditions were not good and the issue may not succeed. We probably had to offer a deep discount and hence decided to stay away. But now the market conditions appear to have improved and there is a definite sense of anticipation. We are reviewing our proposal to raise capital. We are definitely not ruling it out now as we were earlier,” P Sitaram, chief financial officer at IDBI Bank, said. The bank was planning to raise around Rs 1,200 crore through QIP but sensing a lack of investors’ appetite, decided to postpone the issue.
Kolkata-based Allahabad Bank has also revived its plan to raise Rs 320 crore through this route. In December, 2013, the bank had received its shareholders’ approval to sell shares to institutional buyers. The bank has also received the Reserve Bank of India (RBI)’s permission on the proposed share sale and plans to raise money before the end of the current quarter.
“Depending on the market conditions, we will launch the issue. Hopefully, we will be able to raise money before June 30,” Rakesh Sethi, chairman and managing director at Allahabad Bank, said.
Industry analysts point out that while demand for large corporate credit continues to remain slow, most state-run banks will need money to meet Basel-III capital norms. For instance, United Bank of India, which has been struggling with low capital adequacy ratio, has now decided to raise money through QIP. “We are yet to decide on the pricing and size of the issue but we do have plans to go for a QIP soon,” Sanjay Kumar, chief financial officer at United Bank of India, said.
Syndicate Bank also said its board has approved capital raising of Rs 2,650 crore, and it will explore options like QIP, rights issue and follow-on public offer (FPO) to raise the money.
But bankers cautioned that a lot will depend on election results and its cascading effect on the market.
“Currently, market trend is encouraging. So, we are on the job of working out our capital financing needs. But we will wait and watch the market conditions before launching the issue. We are expecting some capital infusion from the government and for the balance we will either look at a QIP or rights issue,” M Narendra, chairman and managing director at Indian Overseas Bank, said.