India Considers Capital Raise for State-Owned Banks to Boost Lending Business

In a bid to bolster lending activities and enhance public participation, India is contemplating allowing at least four state-owned banks to raise funds or increase their public float during the first half of the upcoming fiscal year, according to sources familiar with the matter.

Among the four lenders targeted for this initiative are Punjab National Bank (PNB), eyeing a follow-on public offer (FPO) by September, and Central Bank of India, which is seeking approval for an offer for sale (OFS) to expand its public float. Government sources revealed that Central Bank of India has proposed an offer for sale, with the government currently holding a substantial 93.08% stake in the state-owned lender.

An official emphasized the need for banks to unlock their value, highlighting that five state-run banks have seen their market capitalization exceed Rs 1 lakh crore each in the current fiscal year, with Indian Overseas Bank (IOB) being the latest addition.

PNB’s Chief Executive Officer, Atul Goel, shared plans to raise funds in the first half of the next fiscal year through an FPO or Qualified Institutional Placement (QIP), with the bank’s board already approving a proposal to raise Rs 7,500 crore in equity capital. Similarly, Punjab and Sind Bank may explore raising Rs 250 crore through the QIP route in the next fiscal, contingent upon capital requirements. Despite challenges such as provisions for wage revisions and rising deposit costs impacting net interest margins, state-run lenders collectively recorded profits of Rs 33,643 crore in the second quarter of this fiscal year.

While Finance Minister Nirmala Sitharaman had announced the privatization of two state-run banks in the 2021 budget speech, progress on this front remains stagnant. Presently, six state-run banks, including Bank of India, Indian Overseas Bank, and Central Bank of India, witness government ownership exceeding 80%.