While Yes Bank fund raising may have helped in restoring confidence in the banking sector to some extent, the story may vary for other lenders, especially state-run banks.
Public sector banks looking to raise capital may find it difficult to lure investors due to concerns related to non-performing assets.
On August 15, private lender Yes Bank raised Rs 1,930 crore via qualified insitutional placement (QIP) of shares and is likely to access the markets for more. While it may have helped in restoring confidence in the banking sector to some extent, the story may vary for other lenders, especially state-run banks that are also in dire need of funds.
Most state-run banks have indicated plans for raising equity in the current financial year to maintain the minimum capital adequacy levels. However, their capability to successfully tap markets depends upon recoveries from bad loan resolutions that are stuck at the National Company Law Tribunal (NCLT).
Investors may get picky given the current market sentiments. "There is a reasonable appetite for banks that have cleaned up their books. But banks with stress on their asset quality may find it difficult to access markets. Also, their shares are trading at very low prices which may dissuade them from diluting at this point," said Gautam Duggad, head of research, Motilal Oswal Financial Services.
Bank of Baroda, Union Bank of India, Punjab National Bank, IDBI Bank, Syndicate Bank and Central Bank of India among others have expressed their intent of raising capital from the markets by third quarter. However, analysts said that they will have to rely on capital infusion from the government initially.
"The first quarter earnings saw very high run rate of slippages that translated into higher credit cost guidance and high NPAs. While government backing is an advantage, on a standalone basis, their projections for Return on Assets and Return on Equity are weak and many of them are trading well below their book," said a banking analyst with a private brokerage.
Lenders are counting on recoveries from NCLT accounts to spruce up their books in time for fund raising. However, delay in resolution of bad loans is adding to the disappointment. "These recoveries would lead to slight improvement. But they don't have a clear roadmap as to by when they will receive these write backs," the analyst added.
The government has budgeted Rs 70,000 crore for recapitalisation of public sector banks in 2019-20. The Reserve Bank of India (RBI) had raised concerns on lenders' capital adequacy levels in its June 2019 Financial Stability Report.RBI said that five banks may have their Capital-to-Risk weighted Assets Ratio (CRAR) below the minimum regulatory level of 9 percent by March 2020, without any planned recapitalisation by the government. Under severe macroeconomic stress, as many as nine banks may see a fall in below 9 percent; while five may see their Common Equity Tier (CET) 1 capital ratio below 5.5 percent by March 2020.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.