Capital Infusion In Public Sector Banks
Vidrum / 21 Feb 2012
The markets in general and the banking stocks in particular have rallied in 2012. On a year-to-date (YTD) basis the BSE Bankex has seen a rise of 39.14 per cent against the benchmark BSE which gained 18.34 per cent. This is on the back of the expectation of a reversal in the interest rate. The public sector banks rallied as there was some good news by way of clarity on the issue of capital infusion from the government. As per the media reports, the public sector banks are going to receive funds from the government by March 31, 2012 (i.e. within the next 39 days).
The government has approved some of the banks’ requirements, such as that of the SBI, while that of the others is under consideration. The move will definitely help the banks to improve their capital adequacy ratio and the funds would also be used for the banks’ expansion activities. In some of the banks the government will infuse the funds while in the case of others the Life Insurance Corporation will pick up a stake, thus providing some relief to the government. The following table shows the approximate capital infusion expected by FY12.
| Name Of The Bank | Approximate Capital Infusion By FY12 (Rs / Crore) |
|---|---|
| State Bank of India | 7,900 |
| IDBI Bank | 2,000 |
| Indian Overseas Bank | 1,450 |
| Punjab National Bank | 1,285 |
| Bank of Baroda | 775 |
| Dena Bank | 115 |
| Union Bank of India | 280 |
| UCO Bank | 200 |
| Capital Adequacy Ratio (CAR) Of The Banks As On December 31, 2011 | ||
|---|---|---|
| Name Of The Banks | Capital Adequacy Ratio (CAR) (%) | Tier 1 CAR (%) |
| State Bank of India | 11.6 | 7.59 |
| IDBI Bank | 13.53 | 7.54 |
| Indian Overseas Bank | 11.84 | 6.68 |
| Punjab National Bank | 11.48 | 7.85 |
| Bank of Baroda | 13.45 | 9.31 |
| Dena Bank | 11.58 | 8.54 |
| Union Bank of India | 11.72 | 7.98 |
| UCO Bank | 12.33 | 7.79 |
Approximately more than Rs 14,000 crore would be infused in the public sector banks. In the budget of 201112, the finance minister had proposed to provide a sum of Rs 6,000 crore for the year 2011-12 to enable the public sector banks to maintain their Tier 1 CAR at 8 per cent. However, the government itself is facing headwinds in terms of fiscal deficit which has almost reached 92 per cent for the first nine months of the budget for FY12 and is therefore finding it difficult to meet its fiscal deficit target of 4.6 per cent for FY12. Therefore, the execution of the same would be somewhat difficult and this could affect some of the banks since they would receive less than what has been expected.
In the December quarter of 2011, of the 39 banks which we analysed, private sector (15) banks continued to out-perform the public sector (24) banks. The net profit of the private banks increased by 26 per cent during the quarter while that of the public banks grew marginally by 1 per cent. This was on the back of higher provisioning which increased by 45 per cent. One should not forget that the sector still may witness some pain on the asset quality front.
However, we believe that the scenario in the banking space is improving. The banks will sooner or later obtain their funds which will further drive their growth. The sector is fairly placed but one should be stock-specific while investing in the sector.
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