Sell-off to fetch only Rs 72,000 crore if PSU banks hit market now

  • Jyotindra Dubey and Mahua Venkatesh, Hindustan Times, New Delhi
  • Updated: Apr 08, 2016 10:42 IST
An electronic board displays currency exchange rates in a State Bank of India branch. (HT Photo)

Public sectors banks (PSBs), hit by rising bad loans and bleeding balance sheets, are set to hit the market to raise capital. The government, which is ready to bring down its stake to 51% in these lenders, has asked them to prepare a roadmap for the same.

The exercise is likely to be done in a phased manner.

State-owned banks could garner around Rs 72,471 crore according to the current market price if they decide to bring down government stake to 52%. This is much lower than Rs 1.6 lakh crore estimated in December 2014 (see graphic).

Banks require Rs 1.8 lakh crore by 2018 to meet the Basel III or capital adequacy norms. While the government will infuse Rs 70,000 crore in the next three years, the rest has to be borne by banks.

“Banks will have to chalk out their own plans (of public offerings) according to their needs… the exercise needs to be taken up soon as it will give a clear picture of where each bank stands. It will also strengthen banks’ financial positions and aid consolidation,” an official source who did not wish to be identified told HT.

Out of 27 state-owned banks, the government controls 22 and State Bank of India (SBI) holds majority stake in the remaining five. State Bank of Patiala and State Bank of Hyderabad are yet to be listed. The cumulative gross non-performing assets (NPAs) —loans that do not yield returns —of 25 listed public sector banks stood at Rs 4.07 lakh crore as on December 31, 2015, nearly 1.5 times of their total market value of Rs 2.9 lakh crore.

A drop in market valuations also means a number of these PSBs would find it difficult to access the capital market to raise funds by dilution of government stake. Instead, most of them would have to depend on infusion from the government.

Finance minister Arun Jaitley, while presenting the budget in February, had announced a capital infusion of `25,000 crore into banks in 2016-17. A similar sum was infused in 2015-16.

“Significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to Rs 7.1 lakh crore by March 31, 2017 from Rs 4.0 lakh crore as on March 31, 2015,” rating agency Crisil recently said.

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