IOB, UCO Bank likely to raise funds through QIP route next month

Another public sector bank, Punjab & Sind Bank, is planning to raise Rs 2,000 crore this year. The government holds 98.25 per cent in the state-owned bank

Public-sector lenders Indian Overseas Bank (IOB) and Uco Bank are likely to raise funds through qualified institutional placement (QIP) next month.

Punjab & Sind Bank is likely to follow suit later this financial year to meet the public shareholding norm of 25 per cent.

When a public-sector unit raises funds through QIP, the money goes to the company because it involves issuing new shares whereas in the case of offer for sale (OFS), the money raised goes to the government because its shares are sold.

An email query sent to the finance ministry, Uco Bank, IOB, and Punjab & Sind Bank remained unanswered till the time of going to press.

A senior executive of Uco Bank said the bank was planning to raise Rs 2,000 crore.

“If the prices are favourable, the bank will explore reducing the government’s shareholding. We do not need capital at the moment, and our capital adequacy ratio is 16.98 per cent as of March 31, 2024. This is the first tranche of fundraising out of the Rs 4,000 crore approval from the board of directors. We expect to complete this by next month after final approval from the DFS (Department of Financial Services),” said the executive.

The government holds 95.39 per cent in Uco Bank.

A senior official of IOB said the bank was planning to raise Rs 5,000 crore next month. “Our shareholders have approved the Rs 5,000 crore fundraise in the AGM (annual general meeting). We have sent the application to the DFS and are hoping for the final go-ahead soon,” said the senior bank official.

Punjab & Sind Bank, another public-sector bank, is planning to raise Rs 2,000 crore. The government holds 98.25 per cent in the bank.

“The process depends on the issue price; the higher the price, the lower the dilution percentage. Right now, we can only give estimations,” said the senior official.

The senior official added this was a process-driven effort. “We are in talks with merchant bankers. In our last AGM, which happened on May 31, it was approved. We have to submit our application to the DFS. We hope to take on board the merchant bankers this month and then send the final application to the DFS,” added the official.

Tale of two banks 

 Uco Bank planning to raise Rs 2,000 crore 

 Bank expects to dilute more than 5% stake 

 Indian Overseas Bank planning to raise Rs 5,000 crore 

 Bank may dilute over 10% of stake

Why QIP? 

Money goes directly to PSU as it involves issuance of new shares, whereas in the case of OFS, money raised goes to government as it involves sale of existing shares