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Bank of India to raise Rs500 crore through QIP in third quarter

LiveMint logoLiveMint 24-09-2017 Malvika Joshi

Mumbai: Bank of India (BoI) will raise Rs500 crore through a qualified institutional placement (QIP), a top official of the bank said. The bank is in the process of finalizing investment banks for the issue.

“We are well-capitalized right now; the fund raising will be just for replenishment of capital. We will be raising about Rs500 crore in the next quarter,” Dinabandhu Mohapatra, managing director and chief executive of BoI said in an interview.

As on 30 June, capital adequacy of BoI stood at 12.38%, against the Basel-III requirement of 9%.

Several public sector banks (PSB) are looking at raising funds from the market to shore up their capital as investor appetite remains strong, offering attractive valuations to PSBs. BoI’s gross non-performing assets stood at 13.05% as on 30 June.

In June, State Bank of India raised Rs15,000 crore through a QIP, the biggest so far by any bank in the country. In August, Vijaya Bank raised Rs700 crore through a QIP.

In a report dated 12 July, Press Trust of India reported that Andhra Bank will raise about Rs 1,000 crore through a QIP in the next five months.

“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,” said Karthik Srinivasan, group head for financial sector ratings at ICRA,

Raising funds from the market will ease some pressure on the government, which is infusing capital into public sector banks.

The government, under the Indradhanush plan announced in August 2015, has committed Rs70,000 crore for recapitalisation of PSBs.

As per the plan, the total capital requirement of public sector banks to meet Basel III capital adequacy norms is estimated at Rs1.8 trillion.

The government expects banks to raise about Rs1.1 trillion from the market. Basel III norms will apply from the end of March 2019.

“Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs110,000 crore from the market,” said a finance ministry press note on Indradhanush roadmap.

In a report dated 14 September, Fitch Ratings said that for PSBs, “dominant stock of non-performing loans (NPLs) continues to be a significant overhang on their ability to pursue meaningful growth.”

The Reserve Bank of India has issued two lists of defaulter firms to PSBs for early resolution of stressed accounts.

The second list issued in August has around 28 accounts, of which BoI has exposure to 19. Mohapatra, however, said BoI has provisioned for these accounts in advance and expects some the accounts to be turned around as standard assets. Mohapatra, who took charge as BoI’s chief executive in May, also said the bank will be selling its non-core assets during the year to further strengthen its capital.

“This (non-core assets) is family silver. The sale should inspire confidence and shore up our market valuation,” he said.

On 8 August, Mint had reported that the bank had floated a request for proposal (RFP) to sell its 29.96% stake in STCI Ltd, a non-banking financial company.

According to RFP, the bank is looking at a partial or complete sale of its 1.13 crore shares at a minimum price of Rs550 per share, which will fetch the bank Rs626 crore.

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