The Hindu Business Line : Analysts welcome Govt nod to SBI rights issue

Mumbai, Nov 30 In the light of Government nod for State Bank of India’s rights issue to infuse more capital, analysts seem to be bullish on the PSU banking sector as it would mean momentum in the growth prospects of these banks and a re-rating of stocks in that segment.

“SBI needs around Rs 50,000 crore in the next 4-5 years and as the Government does not want the shareholding to go down, they would be subscribing to a rights issue wherein they will issue bonds, thus it is a cash-neutral arrangement,” said an analyst with Religare Securities Ltd.

“Any development and progress in the case of SBI will have a positive impact as there will also be a perception change in the minds of investors about public sector banks,” said Ms Anita Gandhi, Head-Institutional Business, Arihant Capital Markets Ltd.

New measures

The move is seen as a positive signal by a large section of analysts who feel that with these new measures towards the public sector banks, their growth momentum will get a boost. The capital infusion move is expected to support the credit growth momentum while adhering to the Basel II norms, according to analysts.

“It was seen that the threshold limit of 51 per cent in the case of public sector banks means that they have to contain their credit growth on the back of capital constraints, but now with the government’s proposal to infuse capital through rights issue, it is expected to re-fuel their credit growth,” said Mr Darpin Shah, research analyst, Dolat Capital Markets Ltd.

“It seems the move is a right direction for public sector banks which are low on Capital Adequacy Ratio (CAR), as these banks will not have to look at alternative methods of raising capital as the Government is willing to take measures in that direction,” said an analyst with a Mumbai based brokerage firm.

A research report by Dolat Capital Market mentions that the Indian banking system requires a substantial amount of capital with Basel II creating an environment where the banking system needs a structural capital infusion to maintain the credit growth under the new policy regime.

Also the government’s capital infusion to the tune of around Rs 100 billion in the form of a rights issue for the largest Indian bank-SBI, comes at a right time with Tier-II PSBs looking for equity raising programme.

Additional trigger

Along with the Govt’s proposal for capital infusion in Tier-II banks, there lies an additional trigger of under-ownership by the foreign investments (FII holding) in these banks.

The FII limit of 20 per cent is almost at a threshold limit for most of the Tier-I public sector banks, thus allowing the foreign money to flow towards the Tier-II PSBs, so as to participate in the fast growing Indian banking industry, which is almost a proxy to Indian economy, the report by Dolat Capital Markets Ltd mentions.

More Stories on : Public Sector Banks | Rights Issue | Stocks | State Bank of India

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page