Financial Blog

Public sector banks delay plans to raise capital

Category: Loans & Credit
Published: Sunday, 12 June 2016 08:34
Written by Super User
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Public sector banks delay plans to raise capital RBI data show during Jan-March quarter bank credit of PSBs grew by a mere 1.4%

Public sector banks (PSBs), which are starved for equity capital, are refusing to tap the markets to raise funds, despite having all the necessary approvals in place. State Bank of India (SBI), Bank of India, United Bank, Oriental Bank of Commerce, Union Bank and IDBI Bank have had the permissions for more than a year or more but they have refrained from raising capital via the qualified institutional placement (QIP) route.

Arun Tiwari, chairman and managing director of Union Bank, points out that even though they have the approvals to raise Rs 1,386 crore via QIP, they havent done it as yet because they do not need the funds now. The credit growth in the system has been low and the areas that we are growing in dont require as much capital. Therefore, the need for capital-raising hasnt come yet, he said.

The credit growth in the banking system has been in the range of 8.5-11 per cent for almost two financial years now. And the PSBs, excluding SBI, seem to be the worst affected. According to Reserve Bank of India data, during the January-March quarter, bank credit of PSBs excluding SBI and its associates grew by a mere 1.4 per cent, compared with 7.8 per cent in the corresponding period in FY15.

Another reason, experts point out, which is stopping the lenders from approaching the market is the stress on the balance sheet, which may deter potential investors. In fact in the last one year, the quantum of bad loans on the book of PSBs has close to doubled, with the tally of bad loans for the listed PSBs (including SBI associates) at Rs 5.81 lakh crore at the end of March 2016, compared with about Rs 3 lakh crore at the end of March 2015.

Bankers also admit that all this combined with the volatility in the market has also deterred them from entering the capital markets.