The banking sector’s fundraising spree continues with over Rs 52,000 crore equity capital already raised by six banks, and a similar amount lined up to be raised over the course of the year. This comes amid the spread of the COVID-19 pandemic which has disrupted economic activity, impacting businesses and raising risks of defaults.

The regulator has advised banks to raise capital at the earliest possible and to not wait for the impact of the pandemic to play out before they tap markets.

“Banks have to remember the old saying that care and diligence bring luck. To paraphrase Oscar Wilde, being caught unprepared in the face of a shock may be regarded as a misfortune, but to be caught unawares more than once may be a sign of carelessness,” Reserve Bank of India Governor Shaktikanta Das had recently said.

Private sector banks have been the first to react and raise capital to protect their balance sheets in the was of the pandemic, using a mix of preferential issues, private placements, follow-on public offerings, and so on.

ICICI Bank, which is the latest to raise equity via a Qualified Institutional Placement (QIP), and Yes Bank, which recently closed a mega Follow-on Public Offering (FPO), have raised the largest amount among banks so far. ICICI Bank has just launched its Rs 15,000 crore QIP, and Yes Bank concluded raising Rs 15,000 crore FPO last month.

Axis Bank also raised a large sum of Rs 10,000 crore via a QIP earlier this month, and IndusInd Bank also announced a preferential issue worth Rs 3,288 crore in July. Federal Bank has announced a Rs 4,000 crore capital raising plan, and RBL Bank is also expected to announce smaller fundraising this year.

Kotak Mahindra Bank was one of the first banks to tap the markets to build its war chest against COVID19 and raised Rs 7,422 crore via a QIP in May.

“We believe that capital raising plans reflect a combination of defensive and offensive approaches. The defensive approach stems from uncertainty in the environment, reflecting a high level of moratorium taken by borrowers, the strength of the economic recovery, and any future liquidity stress.

Simultaneously, lenders are hoping that, toward 3Q FY21, the environment will have normalised, allowing them to explore faster growth via market share gains,” Jefferies said in its report in early July.

UPCOMING ISSUES

RBI had asked all banks to conduct a COVID19 stress test internally to analyse the impact, not heir balance sheets, asset quality, liquidity, profitability, and capital adequacy over FY21-22. Based on the outcome of these stress tests, RBI has asked banks to proactively raise capital.At least four state-run banks have also announced their plans to tap the markets for funds. The largest among them is State Bank of India, which recently got its shareholders' approval to raise Rs 20,000 crore this year.

Punjab National Bank has also announced a Rs 10,000 crore fundraising plan, which includes Rs 7,000 crore via equity via a QIP or FPO. Bank of Baroda has also got approvals in place to raise Rs 13,500 crore via a mix of debt and equity during the year, and Canara Bank has announced a similar fundraise of Rs 8,000 crore.

“The economic impact of the pandemic- due to the lockdown and anticipated post-lockdown compression in economic growth- may result in higher non-performing assets and capital erosion of banks. A recapitalisation plan for PSBs and private banks has, therefore, become necessary,” Governor Das had said.

In its own financial sector stress test, RBI found that the banking sector’s gross bad-loan ratio may rise from 8.5 percent in March 2020 to anywhere between 12.5 to 14.7 percent by March 2021 under its baseline to worst-case scenario.

As per rating and research agency ICRA, public sector banks may require anywhere between Rs 45,770 crore to Rs 82,593 crore over FY 21 and FY22 to maintain regulatory Tier 1 capital at 9.5 percent. Private banks, as per ICRA, will require between Rs 25,236 crore to Rs 48,354 crore over FY21 and FY22.

First Published:Aug 10, 2020 9:30 PM IST