In an effort to raise capital amid the disruptions led by the coronavirus pandemic, five large PSU banks may sell shares to institutional investors later in this fiscal year. SBI, PNB, BoB, and UBI are among the banks that may go for the sale of shares in the second half of this fiscal, PTI reported. The report suggested that these PSU banks may take the path of Qualified Institutional Placement (QIP) after the second-quarter results after they get a clear picture of their NPAs and one-time loan restructuring. Thereafter, the banks are expected to decide the time, quantum, appointment of merchant bankers, and other formalities. It is to be noted that QIP is a way for listed companies to raise capital without having to submit legal paperwork to market regulators.
As the economy sinks in the marsh of 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. In July’s Finacial Stability Report, 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. It added if the macroeconomic environment worsens, the ratio may further escalate to 14.7 per cent under the very severely stressed scenario.
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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 had added that the top priority right now for banks and financial intermediaries should be for augmenting capital levels and improve resilience as 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, Reuters had reported citing unidentified officials. The government has drawn a list of four PSU banks, 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.