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Banks to wait longer to list on stock markets

For public sector banks preparing to get listed on bourses or planning follow-on public offers, the wait might get a little longer. Mahua Venkatesh reports.

business Updated: Nov 02, 2009 22:05 IST
Mahua Venkatesh

For public sector banks preparing to get listed on bourses or planning follow-on public offers, the wait might get a little longer.

The government wants to make sure that banks have adequate capital before they approach the stock markets to raise further capital through public offers.

Effectively, the planned public offers of several such as UCO, Punjab and Sind Bank (PSB) and United Bank of India (UBI) among others would have to wait till the `recapitalisation’ exercise is over.

Recapitalisation refers to infusion of capital in banks to enable them to lend more and maintain a healthy buffer of funds to mitigate risks.

The government, that owns majority share in 29 of the total 83 banks operating in the country, is currently giving final touches to the recapitalisation exercise involving Rs 20,000 crore.

The World Bank has already sanctioned a loan of Rs 20,000 crore for the purpose.

PSB and UBI have already firmed up plans in launching their initial public offer while several others including UCO Bank want to go ahead with follow on public offers (FPOs).

“Though there are a few banks that want to raise resources though the capital market, we want to complete the recapitalisation exercise first before giving them the approval,” a senior finance ministry official told Hindustan Times requesting anonymity as he was not authorised to speak to the media.

The government plans to infuse capital in all banks to increase their capital adequacy ratio (CAR) to 12 per cent or more. CAR indicates the level of the bank’s capital base. It tells us how the banks’ books would look like if its lenders fail or refuse to repay their debts.

The government has adopted a conservative approach on the issue of divesting stake in banks. Banks, which have less than 60 per cent government stake, have limited scope to go to the market. There are 12 banks where the government's holding has gone below 60 per cent.