MFs expected to do the heavy lifting in upcoming QIPs of public sector banks

Some pf the large MFs are expected to participate in the QIPs of 5 state-owned banks

As five state-owned banks, including Punjab National Bank, Union Bank of India, and Bank of Maharashtra plan for Rs 28,000 crore of qualified institutional placements in the next 6 – 9 months as part of their capital raising plans for FY25, sources say this time too they may turn to domestic mutual fund houses to meet their funding needs.

According to some merchant bankers involved in the secondary share sale plans of these public sector banks, initial talks have started with some of the large mutual fund houses to participate in the QIPs.

“Talks are on with the large insurance companies as well,” said a banker aware of the matter. However, he was quick to add that these are more in the nature of informal feelers that some of the banks are sending out to potential domestic investors to gauge their interest.

“None of the banks have initiated road shows or formal conversations with investors yet. That should start around August, when banks have a better visibility on their capital requirement for the next two years,” said another investment banker with knowledge of the developments.

This may be the second round of capital raising through the equity route that PSBs may be venturing into after 2021. Notably, during the pandemic year of FY21-22, a clutch of seven PSBs raised Rs 20,000 crore through the equity market by way of preferential issues and QIPs. Interestingly, even then, domestic MFs lapped up much of the issuances while there was feeble interest from foreign investors.

Bankers and arrangers to the likely QIPs say the experience may not be very different time around. “One should consider this round of QIP more as a show of strength by the PSBs and their ability to garner long-only domestic funds without having to rely on the government for support,” said a former CEO of a PSB. Therefore, the upcoming round of QIP may not significantly help reduce government’s stake in PSBs which, barring State Bank of India,  is around 75 – 90% for most state-owned banks.

Elusive foreign participation
“The appetite of foreign investors to participate in any of the QIPs will be known only when banks start conducting road shows, though for now their interest doesn’t seem very high,” said a merchant banker working on a few QIPs. The interest may be muted from foreign participants because of  the relatively small size of the potential QIPs.

Barring Bank of Maharashtra and Punjab National Bank which may be raising just under a billion dollar each, the other QIPs are  in the Rs 2,000 – 5,000 crore range. At this size, the issuances may not be  ‘meaty’ enough for foreign investors to pick a decent stake. “Unless there is upwards of a billion-dollar issue, there won’t be much on the table for a foreign investor to show interest,” said one of the bankers quoted above.