Bank Of Baroda Plans Up To Rs 5,000 Crore Capital Raise Via QIP
Government-owned Bank of Baroda is planning to raise between Rs 4,000 - Rs 5,000 crore by selling shares to institutional investors through a qualified institutional placement, three bankers aware of the development told BloombergQuint, requesting anonymity.
The fundraise is likely to happen in the last quarter of the ongoing financial year, as the bank is yet to appoint investment banks to run the fundraising process, according to one of the bankers cited above.
In response to an e-mail query sent by BloombergQuint, Bank of Baroda’s Chief Financial Officer Subrat Kumar said that the bank may consider issuance of equity capital after getting the requisite regulatory approvals.
Bank has got approval of the Board to raise equity capital for the current fiscal. At an appropriate time, [the] bank may consider issuance of equity capital after obtaining the necessary regulatory approvals,Subrat Kumar, Chief Financial Officer, Bank of Baroda
In April, the bank’s board approved raising Rs 13,500 crore of additional capital in 2020-21 through a mix of debt and equity issuances. Of this, Rs 4,500 crore would be raised through additional Tier-1 and Tier-2 capital instruments.
So far, the bank has managed to raise over Rs 2,500 crore by way of Basel III compliant additional tier-1 perpetual bonds in fiscal 2021.
In July, the public sector lender informed the exchanges that it had allotted AT-1 bonds worth Rs. 764 crore to 18 institutional buyers in a July 15 issue, and then on July 24 the bank issued a further Rs 981 crore bonds through the same route. The bank’s latest issue of AT-1 bonds, worth Rs 833 crore, was allotted to 10 institutional buyers on Nov. 12.
The funds raised via the proposed QIP would largely be used for bolstering the bank’s capitalization levels, improving its ability to absorb any future provisioning requirements that may occur once the bad loans are allowed to classified as such, said the second of the three bankers quoted above.
The bank’s common equity Tier I ratio as of Sept. 30 stood at 9.21% of its risk-weighted assets, well above the regulatory limit of 5.5%. Its total capital adequacy ratio stood at 13.26%.
The bank, however, hadn’t classified non-performing loans worth nearly Rs 1,500 crore due to the Supreme Court’s Sep. 3 directive, which asked lenders not to tag accounts that were non-performing till August 31 as such, until further orders. That, together with an expected deterioration in asset quality due to the pandemic may raise the bank’s capital requirements.
The lender’s pro forma gross NPA ratio as of September stood at 9.33%.
PSU Banks Find A Window To Raise Equity Capital
PSU banks, with the exception of a few, have found it difficult to raise equity capital from the markets in recent years and have had to rely on government recapitalisation. However, buoyant markets have opened a window for these lenders to raise funds.
On Dec. 7, another state-owned lender Canara Bank authorised the opening of its Rs 2,000 crore QIP issue, and approved the floor price of Rs 103.50 per equity share.
In August, Punjab National Bank said it had its board’s approval to raise Rs 14,000 crore, of which nearly half the amount would be raised via QIP alone to meet Covid-related impact and finance growth. The bank’s managing director S S Mallikarjuna Rao had said that the share sale process for institutional investors was expected to be launched in December or in the fourth quarter of fiscal 2021.
In March, the country’s largest lender State Bank of India sought board approval to extend the validity period for raising equity capital of Rs 20,000 crore, which could be by way of a QIP, preferential allotment or rights issue or a combination of these instruments, till March 31, 2021.
Broadly, the investor interest in public sector banks still remains muted and even the large PSU banks may end up raising capital at lower than expected valuations said the second banker cited above. Presently, the investor response remains limited to long-term institutional buyers such as hedge funds and mutual funds or large insurance companies, he said.
“Most public-sector banks would be aiming to raise funds via QIPs in the last quarter of FY21, as the initial plan to do so by the second half of the year got deferred due to volatile market conditions and the overhang on their asset quality because of the pandemic,” said Karan Gupta, associate director at India Ratings & Research.
In addition to the capital required by these lenders in the normal course of business, “the capital requirement for some of the public-sector banks that have undergone mergers in April is higher, as they look to boost their regulatory capital and become self-reliant in terms of their capitalization levels,” Gupta said. The government in August 2019 had announced four major mergers of public sector banks, bringing down their total number to twelve.