Public sector banks may have to wait until their valuations improve for capital raising through stake sale, rating agency Fitch said on Friday.
“Expectations of higher restructuring in second half of current fiscal and muted credit growth could further mean that earnings (and valuations) recovery will be slow and protracted,” Fitch said in a note.
“As such, the plan to reduce government stakes may have to wait until there is a meaningful recovery in earnings and, therefore, equity valuations,” the agency said.
On Wednesday, the government approved a plan to raise about ₹1.6 lakh crore by selling some of its stakes in State-run banks by 2019, by bringing down the holding to a minimum 52 per cent.
Fitch, in its note, said the government’s decision to lower stake in state-run banks to 52 per cent is not seen as a precursor for privatisation.
“There is no indication as yet that the government has planned this decision as part of a broader privatisation initiative in the banking sector, and Fitch believes that the government's stakes in state-owned banks is unlikely to go below 51 per cent in the medium term,” the agency said.
Assays 17 banks The report assayed 17 banks comprising seven large PSUs — Bank of India, Union Bank, PNB, IDBI, Canara Bank, Bank of Baroda and SBI , seven medium PSUs — IOB, Syndicate, Andhra, Indian, Allahabad, UCO and Central Bank besides the top three private banks — Axis, ICICI, HDFC.
Medium- to small-sized public sector banks are facing higher stress from non-performing assets than large-sized PSU banks according to Fitch. PSU banks account for 90 per cent of the banking system’s stressed assets while suffering from sharply declined earnings and weak capitalisation.
Fitch estimates Indian banks to have Basel III capital needs of about ₹12.47 lakh crore up to 2019, of which PSBs will account for about 85 per cent.
Progress on strengthening capital of PSU has been slow despite relatively weak capital levels and a low internal rate of capital accretion.
Access to core equity continued to be difficult due to the fact that valuations were below the book value of banks besides sluggishness in the issuance of loss absorbing additional tier-1 capital instruments.