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Indian Bank plans FPO by year end, starts roadshow in Hong Kong

LiveMint logoLiveMint 31-08-2017 Malvika Joshi

Mumbai: Indian Bank Ltd is considering making a follow-on public offering (FPO) in the last quarter of the current fiscal, two people close to the development said. The bank plans to raise around Rs1,400 crore to strengthen its capital base and reduce government shareholding.

“The bank wants to bring down government’s stake from 82% to 75%,” the first person cited above said, declining to be named. The move will help the bank strengthen its capital base.

Calls and a text message sent to Kishor Kharat, managing director and chief executive of Indian Bank, were not answered until press time. The public sector lender’s capital adequacy stood at 13.58% as on 30 June, with gross non-performing assets at 7.21%.

The government has also been encouraging banks to divest so that the pressure on it to infuse additional funds into public sector banks eases. On 16 April, PTI reported that the government was nudging at least half a dozen PSBs to raise money through the FPO route. During his budget speech, finance minister Arun Jaitley announced a capital infusion of Rs10,000 crore in public sector banks in the current fiscal year under the Indradhanush programme.

The bank has already started conducting roadshows in Hong Kong. “Indian bank presented the quarterly results to the investors in Hong Kong and also made a preparatory pitch for raising funds,” the first person mentioned above said, adding that valuation should get better by the end of this year as various regulations including the Insolvency and Bankruptcy Code create a positive outlook for PSBs.

Moody’s, in a report dated 31 August, said it expected asset quality in the Indian banking system to recover from its previous trough.

Recently, several banks have raised money from the market. For instance, State Bank of India raised Rs15,000 crore through a qualified institutional placement (QIP), the biggest so far in India, while Vijaya Bank raised Rs700 crore. Indian Overseas Bank Ltd is looking to raise Rs1,300 crore and Andhra Bank Ltd Rs1,000 crore through the same route.

Shares of Indian Bank have gained more than 25% in the last one year.

The bank is also evaluating the QIP route to raise funds. It has invited a request for proposal (RFP) from investment banks. The bidding process will close this week, another person said on condition of anonymity.

Credit rating firm ICRA Ltd estimates the equity capital requirement for public sector banks at Rs90,000 crore-Rs1 trillion for fiscal years 2018 and 2019 as against the Rs20,000 crore budgeted by the government. “The bank-wise capital infusion (by the government) plan for financial year 2018 is yet to be announced. The budgeted capital infusion is much lower than total requirement of PSBs, and further support from the GoI needs to be watched,” Karthik Srinivasan, group head for financial sector ratings at ICRA, said in a report released on Thursday.

The report shows that the dependence of Indian Bank on GoI for capital infusion is zero, mainly on account higher shareholding by the government. On Thursday, shares of Indian Bank fell 1.31% to Rs 286.45. The benchmark Sensex rose 0.27% to close at 31,730.49 points.

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