PSBs gain approval to raise capital but investors unsure, says report

Banks are looking to raise money up to 90 per cent of market cap, according to Morgan Stanley report

A number of state-owned banks have taken approval to raise significant amount of capital, but investor appetite for fresh issuance is likely to be lukewarm, says a report.

According to a Morgan Stanley research report, eight public sector banks have taken board approvals to raise fresh capital, while another five have informed exchanges that their boards will consider capital raising in upcoming meetings.

State Bank of India, Bank of India, Oriental Bank of Commerce, Vijaya Bank, Bank of Maharashtra, Dena Bank, Indian Bank and UCO Bank have taken approval from the board to raise capital while those that would seek approval are Bank of Baroda, United Bank of India, Allahabad Bank, Corporation Bank and Andhra Bank.

The report, however, noted that the investor appetite for fresh issuance is likely to be lukewarm.

It noted that while large banks should be able to raise capital given relatively better fundamentals, smaller state owned banks may struggle.

"With all banks looking to raise capital, demand from investors may be muted - unless banks make this offering to government / government backed entities," the report said.

Moreover, the amounts they are looking to raise is high at as much as 90 per cent of market cap (compared to 6 per cent at SBI).

The report said as government capitalisation continues to be piecemeal and below requirements, state-owned enterprise banks will likely struggle to make proper provisions on bad loans, keeping the NPL (Non Performing Loans) problems alive.