PSU bank shares rally on Rs 14,000 crore fund infusion; SBI gets largest share of Rs 2000 crore

NEW DELHI: Shares of public sector banks rallied on stock exchanges on Wednesday after the government firmed up its capital infusion plan announced in the budget. State-run State Bank of India, the country’s biggest lender, will get the largest share of Rs2,000 crore from the Rs14,000 crore apportioned by the finance ministry. IDBI BankBSE 4.23 % and Central Bank of IndiaBSE 0.84 % are second on the list, with both getting an infusion of Rs1,800 crore. 

“Bigger banks are getting more,” said financial services secretary Rajiv Takru, adding that state-run banks would have room to leverage this capital to raise more funds from the market. SBI’s shares closed up 2.45% at Rs1,716.3 on the NSE even as the benchmark CNX Nifty dropped 0.4%. 

Bank of BarodaBSE 4.58 % was up 5.21%. NSE’s PSU bank index was up 2.69% on Wednesday. Takru estimates that state-run banks can raise up to Rs10,000 crore from the market through rights issue, qualified institutional placement (QIP) or follow-on public offer without diluting government’s existing stake. 

This money has been given to banks only to enhance equity capital, Takru said, adding, “For the moment this is good enough to see them through.” The government has announced a ‘funding for lending’ scheme under which it has promised more capital for banks to provide cheap loans for consumer durables and two-wheelers. 

A second round of capital infusion in the fourth quarter of the current fiscal could happen depending on banks’ performance in lending to these consumer sectors. Many banks have already cut rates on consumer loans after the government announced the scheme. 

“We will be giving them more after judging their performance (based on concessional lending towards home, auto and consumer durable),” Takru said, adding that by the end of the third quarter it would be amply clear how much additional lending banks would require. 

Asked about SBI’s QIP, Takru said: “They would be raising the funds proportionately. The government has 62% stake, so they can raise funds from the market up to 38%. It could be Rs1,500 crore, Rs1,600 crore and Rs1,700 crore.” The SBIBSE 2.35 % board will take a call on the QIP route.

The board is meeting on October 30, he added. “Other than this, bank’s board could take decisions on how they want to raise additional equity. But in any case we have made amply clear that they could proportionately tap the outside market and increase their equity,” said Takru. 

Infusion of capital by government in state-run banks is in addition to their internally generated capital to enable the banks to maintain a comfortable level of tier-I capital, the ministry said in a statement. In 2012-13, the government had providedRs12,517 crore capital to 13 state-run banks. 

During the current fiscal, Bank of Baroda will get Rs550 crore, Canara BankBSE 2.45 % Rs500 crore, Allahabad Bank Rs400 crore and Dena BankBSE 0.68 % Rs700 crore. Besides, Bank of India will get Rs1,000 crore, Corporation Bank Rs450 crore, Union Bank of IndiaRs500 crore, United Bank of India Rs700 crore and Oriental Bank of CommerceRs150 crore.

Courtesy: The Economic Times