The recent spurt in banking stocks has prompted several public sector banks to turn their attention to the public markets for raising capital to fund growth.

Several top-notch public sector banks including Bank of India, Canara Bank and Vijaya Bank are in the process of securing shareholders’ approval for this purpose.

This is significant as the public sector banks had last year preferred to keep away from the public markets for raising capital and depended entirely on the Government — the majority shareholder — to infuse the necessary capital.

Last year was not conducive for capital raising from public markets; the stock prices of public sector banks were depressed compared to private banks.

But with public sector bank share prices seeing some re-rating this year, there is now a discerning trend of banks looking to the public markets for capital.

Also, the Government this year is not in a position to pour capital in excess of ₹11,200 crore provided in the interim Budget.

Sensex The Benchmark BSE Sensex has moved up by 13 per cent over the past three months. During the same period, the banking index BSE Bankex, that consists of both private and public sector bank stocks, gained about 17 per cent.

Shareholders of the Indian Overseas Bank (IOB) on Friday gave their nod for the public sector bank to raise ₹1,200 crore through qualified institutional placement (QIP) issue.

Similarly, the Bangalore-headquartered Vijaya Bank also secured shareholders’ nod on Friday to raise an additional equity capital of up to ₹600 crore either through a rights issue or QIP or through a follow-on public offer (FPO).

As part of capital raising exercise, Bank of India proposes to issue 14 crore equity shares of face value 10 each at a premium to be decided later.

The bank is seeking shareholders’ approval in this regard at its AGM on July 10.

“Public sector banks’ move to leverage on surge in share prices is on expected lines. This is especially so when government's further capital infusion is constrained,” said S N Ananthasubramanian, Practicising Company Secretary and advisor to many public sector banks. Canara Bank will be seeking shareholders’ nod on July 21 to raise fresh capital to fund business growth. The bank’s paid-up capital stood at ₹461.26 crore as March, 31, 2014.

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