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Last Updated : Aug 12, 2020 12:19 PM IST | Source: Moneycontrol.com

Big lenders HDFC, Axis Bank and ICICI Bank go the QIP way to raise Rs 35,000 crore; what does the trend indicate?

ICICI Bank raised around Rs 15,000 crore while housing finance major HDFC and private lender Axis Bank raised Rs 10,000 crore each via QIP.

 
 
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In the last few days, India's three large private financial firms - HDFC, Axis Bank and ICICI Bank - chose the qualified institutional placement (QIP) route to raise Rs 35,000 crore, cumulatively, to meet their needs during such stressful times of the COVID-19 pandemic.

ICICI Bank raised around Rs 15,000 crore while housing finance major HDFC and private lender Axis Bank raised Rs 10,000 crore each via QIP.

In the calendar year 2020, besides these three firms, the market has seen 10 QIPs so far from firms including Info Edge (India), Kotak Mahindra Bank, Avenue Supermarts and Bharti Airtel.

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QIP

While QIP is a tool for fundraising from the market, it is available to only qualified institutional buyers that are mostly large institutional investors. Of late, the market has seen a rush to tap funds from them.

Not only QIP, but companies are also opting for other routes such as rights issues, too, to boost their cash reserves during the COVID-19 pandemic and consequent economic fallout.

Amid the COVID-19 outbreak, India's equity capital market is seeing plenty of fundraising, setting 2020 on track to become the best year on record for share sales, Mint reported.

Lenders in stress?

Can QIPs by heavyweight lenders, such as HDFC, Axis Bank and ICICI Bank, be seen as them facing credit crunch?

"It is not about credit crunch for top lenders as they are able to garner funds through the deposit and CASA. This round of fundraising is largely to build an adequate capital buffer for uncertain times," said Jaikishan Parmar, Senior Equity Research Analyst, Angel Broking.

"The slowdown in economic activity led by lockdown has severely impacted MSME and few sectors. Banks are building adequate capital if slippage increases from the current level post moratorium end in august. Most of the banks are not sure what quantum of loans will slip into GNPA from moratorium book or stressed book once the RBI moratorium period completes," Parmar added.

Lenders, it seems, will have to endure a lot in days to come. While credit growth is falling, the threat of swelling NPAs is growing as there is still uncertainty on the part of pandemic and economic recovery.

The 21st issue of the Financial Stability Report (FSR), July 2020 of the Reserve Bank of India, presented a grim picture of the status of Non-Performing Assets (NPAs) in India.

The stress test conducted by the Reserve Bank of India (RBI) is indicative of the fact that the challenging situation posed by COVID-19 could result in the Gross Non-Performing Assets (GNPA) increasing to 12.5 percent by March 2021 as against 8.5 percent in March 2020.

As per Standard and Poor's estimates (June 2020), gross NPA could rise to 13-14 percent for India.

However, large private sector banks look well-positioned to endure this pain and that is the reason, analysts disapprove of the idea of avoiding them completely.

"Investors should not blankly avoid the full sector, as the sector has few operationally well-managed companies and in an uncertain environment, investors can buy top banks at a lower valuation," Parmar pointed out.

He is of the view that in this environment, the ability to raise sufficient liquidity at a competitive rate, capacity to absorb expected provision for bad loans and adequate capital adequacy will determine the performance of the bank going forward.

"The concern for the financial sector for the next 2 to 4 quarters would be lower growth and possibility of deterioration in asset quality," said Parmar.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Aug 12, 2020 12:17 pm
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