| Banks' rights issue may miss investor appetite | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current market capitalisation of public sector banks is a fraction of capital requirements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Krishna Kant & Manojit Saha / Mumbai Dec 04, 2012, 00:02 IST Business Standard Despite the finance ministry asking public sector banks to opt for rights issue, some of the banks may still want direct equity infusion from the government, as they are not sure of investor appetite. The government has budgeted Rs 15,000 crore capital infusion in public sector banks for the current financial year. Unlike last year, when the government and theLife Insurance Corporation infused equity and increased stake, this time the government wanted a rights issue. However, the proposal asking public sector banks to come out with rights issue to raise fresh capital is likely to fall short of target by a long mile. This is because the current market capitalisation of a government bank is a fraction of their capital requirements. For instance, State Bank of India’s, country’s largest lender, the current market capitalisation is just 8.7 per cent of its assets at the end of March 2011. So, even if the bank dilutes its equity capital by 20 per cent, the amount raised by it would be equivalent to less than two per cent of its assets. In contrast, SBI’s gross non-performing asset as a proportion of its assets was five per cent at the end of the 2011-12 financial year.
Market participants said the investor sentiment towards GOVT stocks took a beating after the Hindustan Copper share sale issue. “The sentiment towards GOVT stocks was dented following the Hindustan Copper’s offer for sale issue, which was saved by the Life Insurance Corporation and public sector banks at the last moment,” said an analyst with domestic broking houses. The market capitalisation to assets ratio is also poor, for tier-II and tier-III public sector banks may actually exceed their gross NPA figures. For example, Central Bank of India’s current market capitalisation is just 2.6 per cent of its assets at the end of FY12. So, even if the bank dilutes its equity by 100 per cent in a rights issue, the amount raised may not meet its capital requirements. Banks will need capital not only to support growth but also to meet Basel-III guidelines, which come into effect from January 1, 2013. Public sector banks — which control over 70 per cent of the market — will need Rs 1.5 lakh crore additional capital to comply with the Basel-III norms, to be implemented over the next five years. The implications are clear. The government cannot bank on equity investors — domestic or foreign — to plug the holes in the balance sheets of public sector banks. The ball will ultimately fall in the promoter’s court and the government will have fork out money to recapitalise banks. It will be a replay of what has happened during the rights issue of Tata Motors (in 2008) and Hindalco Industries (in 2010). In both these instances, non-promoter’s shareholders refused to subscribe to their part of shares and the issues were finally rescued by respective promoters. The same is happening in Europe where governments are being forced to recapitalise and equity markets refuse to pick the tab.  http://www.business-standard.com/india/news/banks/-rights-issue-may-miss-investor-appetite/494468/ Govt to finalise infusion of funds for public sector banks this week
NEW DELHI, DEC. 3:
The government said it will decide this week on the Rs 15,000-crore capital infusion in public sector banks to shore up their capital base.
“This week there will be some announcement about the allocation (to various banks),” Department of Financial Services Secretary D.K. Mittal said here.
“Allocation of the funding will be decided and rest I think the process still has to go through,” he said.
Asked if the capital infusion would be done through rights issue, he said it has to be first approved by respective boards and then the Finance Ministry will take a view on that.
“If there is rights issue, there is scope for anybody to go in...LIC is not a short-term investor,” he said to a query if LIC will be asked to subscribe to the rights issue.
“May be LIC will also make money by selling some of the equities when they come to the market,” he added.
He said the government has made budget provision of Rs 15,000 crore for recapitalisation of banks in the current fiscal. The top three banks which require capital are Indian Overseas Bank, Central Bank of India and the Bank of Maharashtra. State Bank of India would also need capital, he said.
All but Dena Bank have tier-I capital of above 8 per cent well above Basel norms.
HOLDING COMPANY
Asked about holding company structure, Mittal said the Reserve Bank of India has given its feedback and the Finance Ministry is analysing it.
“RBI has broadly agreed on this... However, there is a need to look at regulatory platform because it would be such a large conglomerate (holding company) and how to be regulated.
What kind of capital adequacy it should have,” he said.
“Broadly, they (RBI) said we support this view...the government is yet to take a view on (holding company structure for the public sector banks),” he said.
The 2012-13 Union Budget had proposed setting up of a financial holding company that would help raise resources to meet capital needs of state-owned banks.
Bank crisis impact bad as world war, Andrew Haldane says
A top Bank of England official has told the BBC the banking crisis has been as bad for the economy as a world war - and that bankers' pay should fall.
Andrew Haldane, the Bank's executive director in charge of financial stability, said the damage done to income and output was equivalent to that suffered in global combat.
He added that bankers should be paid similar amounts as doctors or lawyers.
He also said that public anger at the banks was justified.
Speaking to BBC Radio 4's The World at One programme, Mr Haldane said: "In terms of the loss of incomes and outputs, this is as bad as a world war. That is the scale we are talking about."
He said the damage was likely to remain for many years: "If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren."
Morals
In the past five years, the banking sector has been buffeted by a series of crises and scandals.
Loans were made to borrowers who would never be able to repay them and then sold on around the global banking system, which started the sub-prime crisis that froze banks' willingness to lend to each other and to customers.
Mr Haldane said banks still had risky assets of the type that caused the credit crisis hidden on their books and that unless they owned up to these confidence would not return.
"We need to get our banking system firing again, to get its mojo back," he said.
Mr Haldane is in favour of bringing in a stricter regulatory regime for banks, which may include separating banks' retail and investment arms to protect High Street customers from the more risky investment operations.
Pay levels
The problems in the banking sector - which have also included mis-selling of payment protection insurance, and the Libor inter-bank lending scandal - have led to public anger over the level of bankers' pay.
Although bankers' pay has fallen, Mr Haldane said it needed to drop further still to bring it into line with other senior professions.
"Back in 1980, your average investment banker was paid the same as your average lawyer or doctor.
"By the time we got to 2006, they were being paid four times as much."
"A massive discrepancy had been built up, that is now being steadily eroded. It may take some years. Have we got further to travel south? I suspect probably yes," he said.
In previous public comments two months ago, Mr Haldane said that the Occupy movement, a global anti-capitalist network of protesters, had played a key role in financial reformation and had touched a "moral nerve".
He said policymakers had listened to the campaign group, which seeks to reform the financial sector.
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Monday, December 3, 2012
Poverty Of Public Sector Banks Getting Exposed
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