India’s biggest lender the State of Bank of India (SBI) will not be relying on equity markets for now as its capital ratios will increase following this week’s $2.3 billion share sale.
The bank’s chairman Arundhati Bhattacharya said that it is also scheduled to acquire more funds this year from a planned share sale in its life insurance subsidiary as well as possible stake divestments regarded as non-core therefore ruling out the option of seeking funds from the government for the time being.
Bhattacharya added that SBI’s main capital ratios will rise by 79 basis points following the share sale, with its capital weighted assets ratio expected to boost 13.64 percent and common equity Tier 1 to 10.2 percent.
The financial firm which accounts for more than a fifth the country’s banking assets, estimates loans to increase around 10-12 percent in the recent year to March of next year and 14 percent in the year after.
The Indian government’s ownership of SBI will then drop to 57.07 percent once the share sale is done.
Shares of SBI closed the day with 0.1 percent loss to ₹288.50 on Friday.
The booming sale will ease some of the pressure on the government which holds most of the stakes in over 20 lenders.
Analysts stated that majority of these lenders do not have the capability to grow external capital, hence their reliance on the government.
Moody’s Investor Service said on Thursday that the 11 Indian state-run banks it rates including SBI could need around ₹950 billion ($14.8 billion) in capital by March 2019, way higher than the ₹200 billion India plans to put into states banks by then.
Bhattacharya said that SBI would have met the required capital until the said date without fundraising but would keep on seeking at divesting some non-core investments.
Domestic investors purchased 25 percent while overseas institutional investors put into 26 percent and foreign hedge funds comprised for 11 percent.
SBI has also successfully completed its Qualified Institutional Placement (QIP) of ₹15,000 crore which was released on June 5, 2017.
QIP is a tool to boost capital by which companies can sell shares to qualified institutional buyers.
The lender stated that the QIP book surpassed ₹27,000 crore, with total demand in addition of ₹11,000 crore.
It saw very strong demand from DIIs adding up to ₹8,500 crore not including one huge DII.
26 percent of the issue was utilized by FIIs-long only, 25 percent by DIIs minus the huge one and 11 percent by premium FII hedge funds.
The SBI QIP is by far the biggest QIP out of India and this would be the most significant primary capital raised in nearly a decade since the global financial crisis, this will be the third largest equity put up in the Asia Pacific this year.
Will it attract enough investors?
Based on Debasish Purohit’s statement, ₹15,000 crore is not a small sum of money. It will either excite or somewhat impart confidence in other state owned banks in their capital raising plans.
However, he sees investors do not put all the state owned banks in the same case. They will be selected and choose within a certain space.
Purohit also said that some of the bigger banks in that complex will continue to profit out of SBI’s lead but he is not sure with regards to some of the medium sized and smaller banks.