Amid the disruptions led by the coronavirus pandemic, five large PSU banks may sell shares to institutional investors later in this fiscal year in an effort to raise capital. SBI, PNB, BoB, and UBI are among those banks.
Acccording to a report, these PSU banks may take the path of Qualified Institutional Placement (QIP) after the second-quarter results when they get a clear picture of their NPAs and one-time loan restructuring. (QIP is a way for listed companies to raise capital without having to submit legal paperwork to market regulators.)
At a time when the economy is sinking due to the coronavirus led slowdown, the banks bear a significant responsibility to maintain liquidity in the market and ensure the credit flow. However, the banking system is itself struggling with the burden of NPAs, which is expected to dramatically rise further. July’s Finacial Stability Report by the RBI showed that the gross NPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the baseline scenario. The ratio is further expected to worsen if if the macroeconomic environment worsens. It might even escalate to a whopping 14.7 per cent under the very severely stressed scenario.
Consequently, RBI Governor Shaktikanta Das had warned the banks that the country’s financial system is sound but lenders should desist from extreme risk aversion during the Covid-19 pandemic and beyond. He regarded ‘augmenting capital levels and improve resilience’ as the top priority for banks and financial intermediaries right now. He reasoned this by stating that financial sector stability is a prerequisite for giving confidence to businesses, investors, and consumers.
Meanwhile, taking the process of bank mergers further, the government may privatise four PSU banks by the end of this fiscal year namely, Punjab & Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank, in which it directly or indirectly holds majority stakes, and wants to disinvest equity.