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Tuesday, July 23, 2024

Five PSBs expected to launch QIPs in FY25 to meet Sebi’s public shareholding requirement

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In Short:

Public-sector banks are being asked to raise public shareholding by August. Some banks are asking for more time to reach the target. They may sell shares to the public gradually over the next two years. This process could help raise funds for banks to improve their financial position. The government may also dilute some of its equity to meet the public shareholding requirement.


PSBs Seek more Time to Increase Public Shareholding

With the deadline of 1st August looming to raise public shareholding to 25%, the public-sector banks (PSBs) are buzzing with requests for at least two more years from the Securities and Exchange Board of India (Sebi) to slowly but surely reach the target. PSBs such as UCO Bank, Central Bank of India, Punjab & Sind Bank, Bank of Maharashtra, and Indian Overseas Bank currently have public shareholding ranging from 1.75% to 13.54%.

Gradual Approach to Share Sale

As per anonymous sources, the share sale is expected to be between 5% and 10% of the bank’s paid-up equity capital this year, with further sales likely over the next two years. The government might also consider diluting a portion of its equity in the future, but this decision is still under discussion. Queries to ministry of finance, Sebi, and the five PSBs remained unanswered as of press time.

Larger Capital Raising Exercises on the Horizon

State-run lenders like Union Bank of India, Indian Bank, Bank of India, Federal Bank, IDFC First Bank, and J&K Bank have already raised capital through QIPs in 2023, resulting in the government’s stake dilution. This year is set to witness more structured capital-raising exercises by banks.

Concerns and Requests

PSBs have requested an extension to comply with the minimum public shareholding norm from Sebi, citing the example of LIC getting a three-year extension to achieve 10% public shareholding. The large stake to be offloaded if public shareholding is brought down to 75% has led banks to seek more time to comply with Sebi norms.

Future Financial Strategies

The central government expects banks to raise capital directly from the market instead of providing funds through the Union budget. Indian banks have been showing promising growth with a 39% YoY jump in net profit crossing ₹3 trillion for the first time in FY24.

Banks are looking to utilize the capital to strengthen their capital adequacy ratio, improve provisioning, boost lending, and clear bad debts. Stay tuned for more updates as the story unfolds.

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