Fund raising via preferential issue at five-year high

The surge in the current calendar year comes on the back of fund infusion by the government in PSBs

Fund mobilisation through preferential allotments by companies has hit a five-year high. India Inc, including public sector banks (PSBs), has raised Rs 45,209 crore by issuing equity shares to promoters and shareholders on preferential basis in the first 11 months of calendar year 2015 (CY15).

By comparison, companies had raised Rs 29,212 crore via preferential issues in CY14; Rs 44,836 crore in CY13; Rs 38,276 crore in CY12 and Rs 27,161 crore in CY11, data available with the National Stock Exchange (NSE) show.

The surge comes on the back of fund infusion by the government in PSBs. A total of 17 PSBs have raised Rs 30,822 crore, or 68 per cent, of the total amount raised during the CY. In 2014, 20 PSBs had raised Rs 18,617 crore via preferential route, data suggests.

“There is some spurt in activities related to preferential allotment in the case of PSU banks — this is again mainly on account of pressure on them to meet the capital adequacy in light of elevated NPAs (non-performing assets),” points out G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

Suzlon Energy, Reliance Communications, Prime Focus, GMR Infrastructure, Cholamandalam Investment and Finance Company and Magma Fincorp are some of the private players that have raised over Rs 500 crore through preferential issues, data show.

Among individual banks, State Bank India (SBI) raised Rs 8,363 crore, followed by Bank of India (Rs 3,097 crore), Bank of Baroda (Rs 3,046 crore), Canara Bank (Rs 3,037 crore), Punjab National Bank (Rs 2,602 crore), Central Bank of India (Rs 2,243 crore) and Indian Overseas Bank (Rs 2,009 crore).

“Nearly Rs 70,000 crore will come into banks kitty over a period of time. It is the government’s money with which they are re-capitalising the PSBs. According to the requirement and norms, PSBs would eventually require Rs 1.75 lakh crore to capitalise themselves in the next three–four years. So, it is obvious that the first round of money will be put in by the government and subsequently they would be diluting the stake to global investors at a higher price,” said Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities.

Despite capital infusion by the government in PSBs, analysts remain worried about the high NPLs plaguing these banks. Bad loans at listed state-run banks swelled in the September quarter, analysts say, as many borrowers who had previously secured easier repayment terms failed to pay interest.

According to reports, 60 per cent of state-run banks’ average NPA stock has been overdue for one year or more, putting these assets in the doubtful category where recoveries are considered difficult. As asset quality pressures moderate, growth revival remains a key challenge for the sector – especially PSBs.

“One disappointment remains that the Modi government has not moved with more urgency to address the legacy NPL issues in state-owned banks. The vast bulk of the problem loans are in state-owned banks and relate to corporate lending in the power, infrastructure and steel areas. The quality private-sector banks remain outstanding growth stories even if that outlook is reflected in rich valuations,” Christopher Wood, managing director & equity strategist at CLSA had said in a recent note.

“The problem for now is that the Modi Government has not come up with the seemingly obvious “bad bank” solution that would address the issue of asset quality in the banking system most proactively. This failure is serving to delay the revival of private-sector capital spending as well as making monetary easing less effective,” he added.