State-run banks line up QIPs to boost capital

Public sector banks are lining up equity offerings including Qualified Institutional Placement (QIP) issues for the current fiscal in a bid to boost their capital adequacy for the Basel III norms. Central Bank of India wants to raise Rs 2,800 crore while Dena Bank is planning for raising Rs 500 crore.

According to the finance ministry's annual report (2014-15) the government has permitted 23 public sector banks to raise capital through either QIP, Follow On Public Offer (FPO) or rights issue to meet their additional capital requirement.

During the current fiscal Dena Bank is looking for capital raising worth Rs 500 crore by way of Qualified Institutional Placement (QIP). "It will be done at an appropriate time and the preference will be for QIP," said Gian Chand Garg, general manager (financial management) of Dena Bank.

The capital adequacy ratio of Dena Bank under Basel III norms stood at 10.93 per cent as on March 31, 2015 compared with 11.14 per cent a year ago. The tier-I capital of the bank was at 7.67 per cent compared with 7.43 per cent a year ago.

Similarly, Central Bank of India plans to for for either QIP or FPO. "The bank plans to raise Rs 2,800 crore through FPO or QIP in the current fiscal and for the same the bank is in the process of appointing merchant bankers," said RK Goyal, executive director of the bank last week.

The bank's common equity tier 1 as per Basel III norms stood at 7.86 per cent at the end of the fiscal ending March 31, 2015 compared with 6.47 per cent a year ago. The capital adequacy ratio on the other hand stood at 10.90 per cent compared with 9.87 per cent a year ago.

Karthik Srinivasan, co-head- financial sector rating, ICRA said those public sector banks with strong profile will be able to place equity with investors -- be it retail or institutional. The challenge is for weak public sector banks. They will find it difficult to raise money in present environment. The public sector banks are facing asset quality and profitability pressures. The public sector banks will need about Rs 21,000 to 22,000 crore of equity capital in 2015-16, according to ICRA estimates.

In fact India's largest lender is also planning to come up with QIP issue. In February 2015, State Bank of India took shareholders nod to raise upto Rs 15,000 crore by issuing equity shares through FPO, QIP and global offering.