What is the expected mode of the share sale?
As per the PTI report, Qualified Institutional Placement (QIP) will remain the preferable mode and the banks mentioned are expected to decide on the route after their second-quarter results. By the second quarter, banks will get a better picture of their Non-Performing Assets (NPAs), one-time loan restructuring, and consequent rating by end of October.
Later the banks are expected to decide the time, quantum, appointment of merchant bankers, and other formalities.
Which banks are likely to opt for share sale?
According to the PTI report, four to five large banks like State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Union Bank of India would be aiming to raise capital towards the end of the third quarter or during the fourth quarter of this fiscal.
Punjab National Bank
PNB has already hinted at targeting capital markets in the fourth quarter this fiscal to raise funds to help meet growth needs and regulatory requirements.
"We will be planning (capital raising) somewhere around the end of the third quarter or the beginning of fourth quarter. By this time, we would have declared two quarterly balance sheet of the amalgamated entities," PNB Managing Director S S Mallikarjuna Rao told the news agency PTI.
State Bank of India
Just before the capital raising exercise, most of the public sector banks have already got shareholders' approval to opt for a mix of debt and equity route in the current fiscal. Shareholders of SBI have given approval for raising Rs 20,000 crore through public issue or private placement of shares while PNB has received shareholders' nod for mopping up Rs 7,000 crore.
Bank of Baroda & Union Bank of India
BoB and Union Bank of India have also the nod to raise Rs 9,000 crore and Rs 6,800 crore, respectively, by way of common equity capital through various modes, including QIP.
In fact, private lenders, including ICICI Bank, Axis Bank, and Kotak Mahindra Bank, have already mobilised capital through QIPs in the last three months.
The banks will have to plan capital raising in a manner that there is no crowd out of liquidity and enough space is available to both domestic and global investors to participate in various QIPs.
Why banks are raising capital?
Banks need to raise capital based on the assumptions of growth in Risk Weighted Assets (RWA) and ploughing back of profits.
As far as raising capital through Tier I and Tier II bonds are concerned, SBI recently raised Rs 8,931 crore by issuing Basel III-compliant bonds to investors.
PNB attracted Rs 994 crore by issuing Basel III-compliant bonds on private placement basis while BoB raised Rs 981 crore by issuing additional tier-1 bonds.