The revival in investor sentiment towards banks after a brutal sell off in the first quarter due to concerns on deposit outlfows and uncertainties related to Covid-19 has caused smaller banks to consider a share sale to bullet proof their balance sheets.
RBL Bank, which raised Rs 2025 crore through a qualified institutional placement (QIP) as recently as December is likely to be first off the block seeking to raise another Rs 1000 crore through a preferential allotment as it seeks to insulate itself from any shocks in the future due to the Covid 19 pandemic.
“A preferrential issue is on the table because it can be done quickly and needs fewer investors. Not all existing investors may be ready to put money today hence a preference issue is under serious consideration of the bank and could be completed in the next couple of months. The idea is to take capital when it is available as many large lenders are shoring up their base and global liquidity is also benign,” said a person aware of the bank’s thinking.
RBL’s capital adequacy at 16.45% is almost double the 9% required. However, the bank wants to ensure that it has enough capital to meet any eventuality later in the year.
RBL did not reply to an email seeking comment.
Other smaller lenders have already taken shareholder approvals so that they can hit the market in quick time when necessary. Federal Bank has shareholder approval to raise up to Rs 12,000 crore through a mix of debt and equity. Executive director Ashutosh Khajuria said the bank wants to be prepared for any eventuality.
“The outcome of Covid 19 is still uncertain. People are talking about one time restructuring and extension of moratorium but there is no clarity on how things will pan out. With a capital adequacy of 14% we have no immediate need to raise funds but in case stress increases we may want to use the options,” Khajuria said.
The fact that the bank stock price has recovered off record lows seen in March has also given confidence to bank management to explore a fund raising plan without diluting too much equity. Federal Bank shares for example have bounced back 59% from their low of Rs 36 per share in March to end at Rs 57 per share on Wednesday. Similarly, RBL bank has gained 35% while DCB Bank is up 11% from their March lows.
“Raising capital is call of both keeping enough for stressed times as well as for future growth. We have a enabling resolution from shareholders to raise Rs 500 crore of equity but with a capital adequacy of 17.75% are not in any hurry to do it,” said Murali Natrajan, CEO at DCB Bank.
Analysts said Indian banks are better prepared this time learning from the experience of their western counterparts during the global financial crisis.
âOne of the key lessons learned from the GFC was that banks in the US and Europe which delayed raising capital faced a tougher time as the economic shock lasted much longer,â said Abhinav Bharti, head of India ECM, J.P. Morgan.
âThe true impact of COVID and moratoriums will only be known by third quarter FY21 and therefore important that banks create sufficient capital reserves for any stress scenario,â he said.
Investor appetite is still strong for a piece of the Indian financial sector and small and mid size banks may want to tap it sooner rather than later said Taranjit Jaswal, head of corporate banking, Barclays India.
âWith equity raise, banks are also preparing a war-chest, to take care of slippages, once the loan moratorium period is lifted,â Jaswal said.