BackSBI looks to raise Rs15,000 crore
SBI to raise additional equity capital via a follow on public issue, rights issue, including a possible QIP issue
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Mumbai: State Bank of India (SBI), the country’s largest lender, is looking to raise ₹ 15,000 crore from the markets, the bank said in a notification to stock exchanges on Tuesday, a move that comes after the government said it would allow its stake in state-run banks to fall to as low as 52%.
SBI said its board had decided to take an enabling provision to raise additional equity capital via a follow on public issue, rights issue or private placement, including a possible qualified institutional placement (QIP).
The fund-raising is subject to approvals from the government and the Reserve Bank of India, SBI said in a statement to BSE.
SBI chairperson Arundhati Bhattacharya said the bank was not in a hurry to raise capital but the approval to raise capital will give the bank a year’s window to raise capital whenever it is needed.
“If we seek permission at the actual time of raising capital, investors start taking positions on the stock. It is not necessary that we will have to raise the full amount, but we are seeking permission for the maximum amount because it gives us a lot of elbow room," she said.
The government holds a 58.6% stake in SBI, which last raised capital in January 2014 through an issue that received tepid response from foreign investors. At the time, the bank raised ₹ 8,032 crore, with Life Insurance Corp. of India (LIC) taking up over 40% of the issue.
Since then, however, sentiment in the Indian equity markets has changed and foreign investors have been actively buying in the secondary markets on hopes of a revival in economic growth in 2015-16 and beyond.
Foreign institutional investors (FIIs) pumped $16.16 billion into Indian equities in 2014 and have bought a net of $1.24 billion so far this year.
Banking stocks have been among the top picks for most investors who believe that banks will benefit directly from a pick-up in economic growth and falling interest rates.
FII holding in SBI has gone up from 8.83%, as of December 2013, to 11.95%, as of December 2014.
“Frankly, they don’t need to raise fresh capital now. But money is available in plenty and the valuation for the bank is extremely good. It makes sense for the bank to raise capital in this booming market," said an analyst with a foreign brokerage firm who declined to be named because he isn’t authorized to speak with the media.
SBI’s capital adequacy ratio, an indicator of bank financial strength expressed as a ratio of capital to risk-weighed assets, was 12.33%, as of 30 September.
Under Basel III norms, being implemented in phases between April 2013 and March 2019, banks need to have a core capital ratio of 8% and a total capital adequacy ratio of 11.5%.
A gain in the bank’s share price will also allow the bank to raise capital while diluting a lesser amount of equity. At the time of its last QIP issue, SBI shares were trading at ₹ 176 per share (adjusted for a 10:1 stock split), while its shares are now trading at ₹ 329.80.
SBI may not be the only state-owned lender looking to raise additional equity capital. A recent decision by the government to allow its stake in these banks to fall to 52% may push other banks to tap the markets as well.
It is not clear if other banks will be able to raise capital readily.
Only a handful of public sector banks, SBI included, have ready acceptability in the international market. At a price-to-book value (PBV) of above 2, SBI’s PBV is in line with private sector banks. The PBV ratio for most public sector banks is 0.5-0.7, as markets have discounted these stocks due to a relatively higher level of bad assets on their books.
In December, Canara Bank deferred its QIP plans due to poor response from foreign investor. Others such as Union Bank of India are also waiting for an appropriate time to raise capital.
Union Bank of India chairman and managing director Arun Tiwari on Tuesday reiterated his plans to raise ₹ 1,386 crore from the market. The bank has been trying to raise capital for the last few quarters.
“We will raise the capital at an appropriate time and at an appropriate rate," Tiwari said, while discussing Union Bank’s results.
“We have to ask ourselves raising (the capital) at what cost and for what," he said, adding that the absence of a pick-up in credit demand was deterring the bank from raising capital at high cost.
India’s state-owned banks will need between ₹ 1.5 trillion and ₹ 2.2 trillion in additional capital by 2018-19 to meet international capital requirements set under the Basel III norms, according to a Moody’s report released in September 2014.
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