PSU Banks' Recourse To QIP Funds For SEBI Compliance Will Help Increase Liquidity As Well

The move will also bring in much needed liquidity in the banking sector. With reduced government spending and outflows of dues pertaining to goods and services tax (GST), the banking sector has been hit by liquidity crunch.

Though the lenders have written to the regulator seeking more time to comply with the guideline, sources said that the banks have already initiated the process of coming out with new share issuance through the qualified institutional placement route.

“This is a good time for the PSU banks to opt for QIP and raise capital, now that they have recovered with strong underlying financials. This will further strengthen their capital base and boost their growth strategy,” Sheshadri Sen, head of research and strategist, Emkay Global Financial Services told The Secretariat. Sen added that this will also improve governance.

According to a Bank of Baroda analysis, liquidity deficit in the system has been increasing since September 2023. A key factor that has been impacting the banking system liquidity is the uneven growth in credit and deposits. While credit has been growing at a robust pace, deposit growth has been lagging in relative terms, it said.

“Though the liquidity problem for banks is temporary and things will improve with increase in government spending, the additional capital that the lenders get from the QIP will also help,” Sen said.

Sources said that uncertain market conditions had been one of the main reasons for banks to go slow in complying with the SEBI norm.  

The MPS guideline mandates all listed entities to ensure a minimum of 25 per cent public float, or non-promoter stake. The regulator had given time till August 1, 2024 to the public sector banks to comply with the norm, aimed at strengthening corporate governance, transparency and accountability.

While seven of 12 PSU banks -- State Bank of India, Bank of Baroda, Bank of India, Canara Bank, Indian Bank and Union Bank of India -- already meet the norm, the remaining five fall short of it in varying degrees.

Public holding in Punjab and Sind Bank, Indian Overseas Bank and UCO Bank is as low as 1.75 per cent, 3.7 per cent and 4.6 per cent respectively. The corresponding figure for Central Bank of India and Bank of Maharashtra stands at 6.9 per cent and 13.5 per cent respectively.

Raising it to 25 per cent will be an uphill task, which is why these banks are seeking from SEBI an extension of the August 1 deadline. Tapping the QIP route is just the first step, and these banks hope raising money in the coming months will get easier given the recent improvement in balance sheets.

Improved Balance Sheets

Driven by strong financial performance, PSU banks have had a good run on the bourses. The Nifty PSU bank index comprising 12 stocks is currently at more than 7,300 points. It has more than doubled from about 3000 in April last year.

The surge in PSU bank stocks have caught  investors' attention. Among others, the implementation of the Insolvency & Bankruptcy Code (IBC), which helped the PSU lenders to clean up their non performing assets (NPA)—loans that fetch no returns—has helped the banks in wiping off the bad assets.

“Apart from the improved asset quality and earnings, what is working for these banks is also the government’s thrust on infrastructure and energy -- especially renewable projects and a host of other schemes announced by the Centre.... these will be carried out through the PSBs,” Nirupama Soundararajan, Founder and Partner, Policy Consensus Centre said.

Analysts said that the QIP exercise, essentially a private placement, is less cumbersome and takes less time to carry out.

The bank unions, however, are not happy with the proposal. “There is no need for rushing with this exercise as the public sector banks are now doing well with no stress on capital adequacy ratio (the ratio of a bank's capital to its risk-weighted credit assets),” CH Venkatachalam, general secretary, All India Bank Employees Association (AIBEA) said.

The government owned banks together registered a net profit of Rs 1,41,203 crore and paid a dividend of over Rs 18,000 crore. While earlier the government had indicated that state owned banks could be merged in a bid to create mega lenders much like the State Bank of India, sources said the plan may be aborted especially as each of them managed to register strong turnaround.