In need of more capital, state-owned Bank of India (BoI) plans to raise Rs 500 crore through a qualified institutional placement (QIP), a senior official aware of the development told Mint.
"We are well capitalised right now; the fundraising will be just for replenishment of capital. We will be raising about Rs 500 crore in the next quarter," the business daily quoted Dinabandhu Mohapatra, managing director and chief executive of BoI, as saying.
Currently, the lender is in the process of finalising investment banks for the issue. As on June 30, capital adequacy of the bank stood at 12.38 percent, against Basel-III requirements of 9 percent. For the same period, BoI's gross non-performing assets stood at 13.05 percent.
To shore up their capital many public sector banks (PSB) are looking at raising funds from the market.
In June this year, State Bank of India (SBI) raised Rs 15,000 crore via QIP, the biggest so far by any bank in the country. Later in August, another PSB Vijaya Bank raised Rs 700 crore using a similar instrument.
"Investor appetite for QIPs of weak public sector banks could be decent with participation from large domestic institutional investors. Measures being taken by the PSBs to bolster their capital levels by divesting non-core assets and realigning risk-weighted assets should help in the interim till the government finalises it's capitalization plans for PSBs," Mint quoted Karthik Srinivasan, group head for financial sector ratings at ICRA as saying.
The state-owned lenders are reeling under bad loans. Total bad loans in the banking sector are close to Rs 10 lakh crore and banks are in dire need of capital infusion to continue operations.
If banks raise funds from the market, government will get a breather. The government, under the Indradhanush plan announced in August 2015, has committed Rs 70,000 crore to recapitalisation of PSBs.
As per the Indradhanush roadmap, public sector banks need to raise about Rs 1.10 lakh crore (Rs 1.1 trillion) from markets, including the follow-on public offer to meet Basel III requirements which kick in from March 2019. This will be over and above the Rs 70,000 crore that banks will get as capital support from the government.
In line with the Centre's Indradhanush plan for recapitalisation of banks, the government announced the infusion of Rs 10,000 crore into state-owned banks in 2017-18 and 2018-19.
"Improved valuations, coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs 110,000 crore from the market," the finance ministry had said in a press note on Indradhanush.
Last week, rating agency Fitch Ratings said that Indian banks will need additional capital of $65 billion to meet the remaining Basel III banking stipulations by March 2019, with state-run lenders accounting for 95 percent of the requirements.