To shore up capital and tide over the core equity crisis, state-run banks (PSB) have actively pursued sale of several non-core assets. However, only a few attempts succeeded, with several mired in legacy issues, prolonged procedures and wait-and-watch tactics of potential suitors hoping to land cut-price deals.
For instance, the country’s second largest lender Punjab National Bank (PNB) is unable to sell its former headquarters at Bhikaji Cama Place in South Delhi, as the Delhi Development Authoity is yet to give clearances. The sale could have generated Rs 1,000-1,200 crore. Undeterred, the scam-hit lender has put its housing arm — PNB Housing Finance — on the block, in which it plans to offload 33 per cent stake. PNB is also aiming to raise Rs 8,500 crore in FY19, monetising some non-core assets. The target appears audacious, particularly because it only managed to raise a piffling Rs 1,567 crore from sale of assets between January and September, 2018.
However, the good news is that PNB managed to recover a record Rs11,378 crore from defaulters in the first five months of the current fiscal, more than its total recovery in two years through 2017-18. This lowers the need for setting aside money from profits towards provisions. The bank now hopes to do an encore with chances of repayment from large accounts like Essar Steel, Bhushan Power & Steel and Uttam Galva.
Likewise, State Bank of India (SBI) plans to raise about Rs 26,600 crore this fiscal from sale of non-core investments, stake in subsidiaries and the market.
In a report submitted to the parliamentary public accounts committee, SBI detailed its plans, which include raising Rs 2,777 crore from the sale of non-core investments in NSE, Sidbi, CDSL and other public entities. It also mulls divesting stakes in subsidiaries and joint ventures like SBI Life, SBI General, SBI Cards and SBI Caps, raising Rs 4,607 crore.
Besides, SBI intends to raise AT-1 capital of Rs 8,000 crore, and equity capital of Rs 10,817 crore during the year, provided market conditions are favourable.Similarly, Bank of India plans to raise nearly Rs 1,000 crore by sellling stake in some non-core assets and real estate. It also plans to raise over Rs 800 crore through stake sales in STCI Finance and in SIDBI during the current quarter. Last year, it was forced to drop plans for STCI Finance due to lower-than-expected offers, but hopes for better expression of interests from potential suitors this fiscal.
Banks look far and wide to raise capital
PSBs like PNB, SBI and Bank of India are looking to raise capital from many routes including sale of non-core asset sales, ramping up recoveries and divestment of stakes in subsidiaries and joint ventures. Some are also looking to the markets, provided valuations are favourable.